Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer, and Philippe Heim, Chief Financial Officer, will present the group's first quarter 2018 results. Gentlemen, please go ahead.
Good morning to all of you. Thanks for attending our conference call on the first quarter results. I suggest that we proceed like usual. We will meet with Philippe Heim, our CFO, for a short presentation, and then we will, with our management team, answer your questions. I would like to again highlight the good discipline that we keep usually, two questions for each person. Let me start immediately with the first slide, page four, to have an overview of our first quarter results. In an environment which was robust in terms of economic activity, mainly across the world and in particular in the Eurozone. With market environment, where we comment with a sharp contrast from one region to the other.
When we look at this first quarter, first of all, let me look at the profitability on an underlying basis, normalizing for the IFRIC 21, a return on tangible equity of 10.9%. We have still work to do, but I think we are 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 environment, and also by the effect of last year's 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.
Regarding the Global Banking and Investor Solutions, of course, we suffer from the weakness of the dollar versus the euro. We have roughly on these activities, 40% of our revenues, which are influenced by the euro-dollar foreign exchange rate. Also, as I said, by a sharp contrast that we have seen between our different activities and geographies. In a very awkward quarter, which was already commented by other banks, with a strong start, but then something more sluggish in February and 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 a low demand, for example, on structured products, with probably some impact related to MiFID. All in all, a performance with a decrease of revenues, but of course, which is influenced by the business model in the capital market activities.
We maintain a strong discipline on the cost. Of course, the cost base, for example, in retail has. Let me just remind you that all our transformation costs are allocated to the businesses, and you will notice, in particular this first quarter, that we have a corporate center. It's at a break-even, we have all our cost of transformation on the businesses. Beyond this, we maintain a strong discipline on the cost. Can I just highlight the increase of the commission to the Single Resolution Fund? This first quarter, with, of course, the IFRIC 21 effect, we have booked EUR 430 million. That's net of tax, it's not deductible, which represents an increase of EUR 78 million compared with last year. 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. Underlying net income at EUR 1.2 billion. I've mentioned already this return on tangible equity at 10.9%, normalizing the impact of IFRIC 21. Regarding just the slide chart five, the objective on the three main businesses. For this year, it's a very important year of transformation. We want to progress, in particular on the digitalization of our processes. We are 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, which we will look at more in detail, in particular, the strong dynamic of Boursorama, with more than 126,000 new clients during just the first quarter. I've already commented on their expectation of a 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 talk about an 8% revenue growth on a like-to-like basis and with good performances across the board. The return on normative equity, the underlying return on normative equity stands at 17%, we are basically at our target for 2020 and above. We want to pursue, we are very confident that we will see this kind of perspective for 2018. In global banking and investor solutions, what we are seeing is the impact and the effect of this 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., perspective of higher rates, the positive impact of lower tax cuts, which means a better result for U.S. stocks, also potentially share buybacks. The volatility effect, in particular, impacting big tech stocks, the VIX impact on certain products. We have not the same thing in Europe, we have in mind, a progressive normalization, it might take some time. What we want to achieve is a focus on our two main strategic objectives, in terms of European product. 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, our number one position, for example, for global securitization. We see the benefit of strong positioning. In capital market, 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 products. 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 our GBIS results this quarter, we post more than 10% return on normative equity after tax. That shows this discipline, and we want to achieve globally this capacity to outperform our European peers in terms of profitability. I will turn to Philippe, who will enter more into the details.
Thank you very much, Frédéric. 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 six, there is a description of what we've got in terms of cost of risk. First, the group level, you see that we have a very low cost of risk in Q1, ending at 18 basis points versus 24 last year. It reflects, of course, once again, the structural efforts we delivered in the past three years. It reflects also the buoyant and political-economic environment. You can note also that in terms of non-performing loans over the same period of time, we moved down from 4.8 to 4.2. All across the board, in every business line, we have the same pattern.
Cost of risk at 29 in Q1, 28 in international retail, and net, let's say, reversal, positive cost of risk in GBIS, minus five basis points. What is the outlook now? Going forward, I may there anticipate questions. We are indicating during the investor day that it's reasonable from this point to anticipate a gradual normalization of cost of risk during the cycle and continuing progressively to something between 35 and 40 basis points in 2020. Our guidance for this year was for cost of risk between 25 and 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 two elements I mentioned before during the yearly results.
You have the first-time application impact of IFRS 9, and we decided not to adopt, let's say, the phasing approach, to take in one go the impact of IFRS 9. As all French banks, we have this methodological add-on on irrevocable commitments on Single Resolution Fund with impact of eight basis points. On the top of that, we have the usual seasonal effect of IFRIC 21. Bottom line, if the CET1 ratio is down by 20 basis points, if we neutralize the effect I mentioned before, we created this quarter seven basis points of capital. On a yearly basis, something between 25 and 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 a 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 initial instrument beginning of April, we have a Tier 1 capital above 17.1%, leverage ratio stands at 4.2. We are already TLAC compliant. Overall, we have a very solid balance sheet structure, and we benefited recently from an upgrade from Moody's. Our senior debt rating being lifted from A2 to A1. Page eight, I will be brief. This is a summary of the consolidated results with the elements already described. Revenues down by 2.5%, affected by exchange effects. Operating expenses, if we linearize or annualize, if we [neutralize IFRIC 21 effects], operating expenses were up by 1%. Net cost of risk is very low at EUR 208 million.
We have a reported group net income at EUR 815 million, but with smoothing out the effect of IFRIC 21, we come up with an underlying group net income at EUR 1.2 billion, representing a ROTE of 10.9%. Now let's review the activity of the businesses, starting with the French retail, and we'll focus first on individual customer segments, where we continue to deploy our model. Regarding Société Générale and Crédit du Nord, as a foreword, 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. Boursorama, and I will elaborate on this, demonstrates the strength of its customer acquisition engine, and regarding specifically to the client base, the number of mass affluent and wealthy clients was up by 5% in Q1.
Regarding the commercial activity, a word first from the real estate market. Our production was down by 19%, but it was a high base point, 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 a renegotiation wave. This movement is now over. The current annual renegotiation pace 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 loans, in CGI, booked in Western Europe. If you put together all our consumer credit outstanding books, in fact, we have an increase of 7%.
Regarding the key initiatives this quarter, you can see that the net inflows of private banking actually is well oriented, an increase of EUR 1.1 million, giving Boursorama a record quarter in terms of acquisition, with more than 126,000 new clients, close to 1.4 million clients. I have to highlight that Boursorama, contrary to some market players who only develop payment services, Boursorama 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 client base with a growth of 2.5% of the corporate clients. The book is up by 3.3%. We decided this quarter to make a specific focus on Crédit du Nord 's model. You know that 60% of Crédit Lyonnais 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 and needs of our clients. This model is powerful in terms of acquisition. In Q1 alone, we have 6,200 new relationships. A word on transformation. We describe largely 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 the number of branches by 20%. This will be, of course, accompanied by roughly 3,400 redundancies. This transformation program, of course, requires investment and expenditures. The HR aspects are covered by the exceptional provision we took in Q4, roughly EUR 400 million. As you may know, in early March, Société Générale, we leverage on the new scheme introduced by the Macron ordinances reforming the French Labor Code.
In this context, we have signed a majority agreement with the trade unions for collective mutually agreed termination, what you call rupture conventionnelle. Of more than 2,000 positions, we are one of the first corporates using this scheme. Apart from the HR aspect, there are other operating expenses, other investments to cover regarding the adaptation of the network coverage. We plan to close honorable branches this year. We have also expenses or investments to overhaul and upgrade the customer experience and processes. In that respect, we have a landmark delivery this year with innovative tools like biometric face recognition or the 360 view to have real-time and systematic of all client data. At the end of 2018, this is an important milestone, 50% of our main processes will have been digitalized within the Société Générale network. What is the magnitude of this investment?
What is important to keep in mind is that this is fully consistent with our trajectory. Between 2016 and 2020, as indicated during our investor day, the annual cost increase will be contained within 1%. More specifically regarding 2018, costs are expected to increase by less than 3%. Moving to slide 13, to give you an overview of the results for the French retail division. Revenues are down by 1.6%, we confirm that progressively we are heading towards a 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.
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 renegotiation and early termination of around EUR 27 million. This effect will be fully absorbed between Q2 and Q3. That is why the normalization and the full year stabilization will be seen more likely in the year. Regarding commissions, they are slightly down by 0.9% due to, for example, the disposal of OnVista Germany, the subsidiary of Boursorama. We have also bit and pieces of an unfavorable basis effect. Online is a good start of the year, for example, in private banking. Operating expenses increased by 4.2%. Net cost of risk is virtually stable compared with last year. All those elements leading to a contribution to group net income of EUR 270 million.
Now let's move to IBFS, starting with Europe, Russia, and Africa, delivering all together a return on normative equity of 15.5%. We continue to enjoy in Europe very strong results, in a sound economic environment with a solid growth of outstanding loans 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 a clear positive growth and the profitability stands at 21% for Europe. Regarding Russia, of course, the situation I've described is one of the quarter starting 1st of January and ending end of March. In the context of progressive normalization and inflation of 2.5%, a stable at that time ruble, interest rates brought down to 7.25% by Central Bank of Russia.
We have the usual seasonality effect in Q1, and the continuity of the pattern we have identified in the past quarter. Progressively, a catch up in, let's say, in the retail space, with a recovery of retail loan. The production is up by 29%. Overall, the revenues are up by 9% in Russia. In Africa, the economic environment is still very solid between the Mediterranean basin and Sub-Saharan Africa. We have the loan book up by 10%, revenues up by 7%. 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. We'll accelerate the deployment of regional hubs where support function and expertise will be located and put. A word on the bank insurance model at 15, an activity which generated EUR 2.1 billion of revenues in 2017, up by 8%.
Those revenues are split between the insurance business unit, collecting EUR 0.8 billion of revenues and the retail network for EUR 1.3 billion through distribution fees. We went down the road to further increase the contribution of insurance activities. Through lifting the equipment rates of our retail banking clients. For example, you know our objective in the P&C space. We want to lift the P&C equipment rate from 9% to 12% into 2020. Also, we want to increase the share of unit linked products in life insurance outcomes. 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 IBFS. Revenues are up by 3.9% adjusted for changes in group structure and at constant exchange rates. Operating expenses rose at the same time by 3.0% because we need to accompany the movement of developments. Overall, IBFS delivered a high level of contribution, EUR 429 million, stable with last year, and this is a quite nice performance given the fact that we now consolidate only 80% of ALD following the IPO. You remember that we had the benefit last year of the sale of Commerzbank head office for post-tax effect of EUR 17 million. We managed to cover those elements and to stabilize the contribution for group net income, and we have a return on normative equity standing at 17% this quarter, adjusted for IFRS 21.
Moving to GBIS, before commenting the results, we share with you the data we collected from Coalition on market share. I think that before commenting the year-on-year evolution on specific segments, bottom line, it's very relevant and very intuitive to see that over this period of time between 2018 and 2017, all across, let's say, the activities and all across geographies, we are one of the banks capable of increasing market share. Globally speaking, we move from 3.5% to 3.7%. We strengthen our market share, in equity, in FIC, and in commodities. Moving to the results of GB, starting with global markets and investor services. Revenues were down by 13%, with diverging developments between businesses and regions. Starting first with fixed income, activities declined significantly by 27%. Mentioning that Q1 of last year was a five-year record.
We suffered in flow activity from extremely low volatility, in Europe in particular. Financing, which was a growth driver last year, was weakened by an increased competition. On the other hand, we have a pretty resilient performance of structure products with a FIC underlying in Q1. Regarding equity, revenues were down by 5% if we don't have the foreign exchange effect, reflecting two factors. We have a pretty good performance on flow products, specifically in the U.S., but we are less exposed on this activity and this geography. Regarding structure products, which represent part of our franchise, we have less, let's say, buoyant environment, in particular in Europe, with a more pronounced wait-and-see attitude adopted by our clients, at some point, a more conservative bias after the volatility spike in February.
Moving to equity services, a very good quarter, revenues up by 9%, with a good level of commissions. Moving to slide 19, financing and advisory. 50% of revenues in this division are in USD, if we neutralize this effect, let's say, we neutralize the foreign exchange impact, revenues were roughly stable, -1%, with good performance in all asset-based activity, export financing, real estate, project finance. Revenues in securitization were up for the ninth consecutive quarter. We also quite nice achievement in this. Finally, in wealth and asset management, revenues were down by -2% over the quarter. We have good, let's say, momentum in terms of inflows, more than 7 billion, altogether, Lyxor and one wealth management. We reach an all-time high of EUR 234 billion of AUM.
The summary of the results for GBIS, revenues down by 13% due to negative foreign exchange effect. OPEX were up by 1%, impacted significantly by the increase of the contribution to the Single Resolution Fund, I can elaborate on this later on. Cost of risk remained very low. The contribution of GBIS to group net income stood at EUR 166 million. Excluding, let's say, smoothing the effect of IFRIC 21, we stick to a profitability at 10.2% for GBIS. A word on the corporate center, slide 21. I would like to remind you that with the new IFRS 9 standards, we have, let's say, the effect of the revaluation of own financial liabilities, will now go directly to the shareholder equity. We have this quarter a positive GY, +EUR 36 million.
Regarding our guidance of corporate center GOI of minus EUR 400, we can say that this guidance is conservative and we'll come back to you regarding, let's say, the guidance later on this year. Lastly, regarding disputes, we can confirm that we have entered into a phase of more active discussions with relevant authorities to conclude the transactional agreement on LIBOR and LIA cases with next few weeks. We have good visibility regarding the financial impact. We are comfortable with the around EUR 1 billion provision we set aside within our provision of EUR 2.3 billion. So much for me. I leave the floor to Frédéric for the conclusion.
Thank you, Philippe. Just in a few words, slide 23, to recap our main objective for 2018. I think we have 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, it 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 targets, and you can expect some material announcement by year-end.
Of course, at the same time, we are fully committed to objectives in terms of responsibility as 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, the board had to face the unexpected departure of Didier Valet, who was, in practice, our younger Deputy CEO in a team of three Deputy CEOs, with myself as the CEO. Having to deal with this situation, the board organized a very structured process with a very clear timeframe, with two objectives. First 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.
We generally use that process to explore all the internal options, 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. 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. At the same time, change effectively the composition, in particular, and more marginally, the organization, going for four Deputy CEOs instead of three.
First of all, let me say in that context, Bernardo Sanchez decided to leave the group to pursue other opportunities. As you know, Bernardo has been with us eight years, has delivered a great contribution with the strong current impact of the results in IBFS as reflected also in this first quarter as well as in 2017, has launched successfully this long-term transformation of the French retail. I would like to thank him and really highlight his top contribution to our group. We have decided to appoint, alongside Séverin, who was already Deputy CEO, three new Deputy CEOs, which I think share the same thing. They are all very seasoned, experienced bankers with different backgrounds. Let me just review that Philippe Aymerich is appointed the Deputy CEO in charge of all the French retail activities and the transversal resources.
What I mean by this is IT, procurement, and real estate. He has spent 30 years at Société Générale, mainly in corporate investment banking activities in the risk function. He had been the CEO of the U.S., Deputy CEO of the risk function, and was before CEO of the Crédit du Nord. Philippe Heim, our current CFO, joined us in 2007, and after an experience as a senior banker, head of strategy, and CFO, he's taking over as Deputy CEO in charge of international retail banking activities and financial services as well as insurance. Séverin, who as you know, also has a diversified profile in the industry and joined us more than 10 years ago. He is taking over Didier Valet's role, activities that he supervised in the past and with, again, the objective to implement the strategy and further nurture our talents.
Diony Lebot, and I must say, I'm very proud to appoint the first woman as the Deputy CEO in Société Générale, is also a seasoned banker, Greek by background. She 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 till 2012. She has had also responsibilities in the structured 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 Société Générale. William Kadouch is taking over as CFO. William, the same thing, joined us in 2007. He has had an experience of senior banker in U.S. banks, then was also a senior banker with us, and followed the same path, I must say, than Philippe.
After his senior banker experience, was appointed head of strategy, and now CFO. You can see that we are building a career development with very long-term plans to feed our succession planning objectives. Sylvie Rémond is taking over Diony Lebot as head of risk. Same thing, a long experience with the bank, Société Générale, mainly in the structured finance business. She had been already also Deputy Head of Risk, and she was currently Co-Head of our coverage activity. 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 reinforced the diversity of the team, I must say, I think we are effectively delivering on the two objectives, continuity and capacity to deliver the strategic plan and prepare the future. That's what I wanted to say, and we are now open to your questions.
Ladies and gentlemen, if you wish to ask a question, please dial zero and one on your telephone keypad. We have a first question from Mr. Tarik El Mejjad from Bank of America Merrill Lynch. Please go
Hi. Good morning, everybody. Thank you for taking my question. I have two questions, please. First, on CIB. What happened? All your peers showed very good numbers. Consensus was relatively low to beat. My question here is, I hear your answers about the flow in U.S. and structured products being weaker, less demand. But I think the structural question here is, for the last three quarters, really, you underperformed the market despite market share gain, actually. Is really actually the structural engine of the equity market is working as it used to be at function? Or do you think there is something more structural to fix there? It is maybe management changes and discussion by the time, just really to understand what's going on there. My second question is on costs. How the EUR 17.8 billion 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.
Tarik, 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. Here, we are presenting figures provided to us by 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 segments of capital markets. On the slides, you can see that we have gained marginally, but every year, market share, it is in terms of revenue. That's true for all geographies. That's true for all products. If I turn to the first quarter, as I've said, now we saw very contrasted activities.
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. In Europe, we had effectively low demand on structured products at the beginning of this year, as well as on the flow side. I just would like to tell you, we've made a pretty theoretical calculation, but based on the Coalition 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. Of course, much more geared towards U.S. equity cash and derivatives flow business than we are. We have plugged towards that model our own performances for each segment in the beginning of this year.
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. We have really the feeling that we have, this quarter, something very contrasted. As I said, all the elements which happened were largely centered in the U.S., the volatility on big tech stocks, the events on the VIX, on certain products. 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. 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.
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. 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 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. That clarity would be probably needed in Europe to have more stable conditions. Effectively, what we have in mind is that going forward, there will be, for example, more ability to structure new categories of structured products with a different rate curve and fundamentally further extract 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 further synergies with our client base. There is more capacity to optimize the franchise on that business. I think that again, this quarter is very contrasted. These conditions might last for, again, for a few months. Going forward, if I look at the next three years, we are again confident with our capacity to deliver growth in these activities. 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. There was, in our view, nothing specific beyond this contrasted, more than ever contrasted activity levels, depending on geographies and products.
Can I turn back to Philippe regarding the costs?
Yes. Good morning, Tarik. Regarding the cost, you have a different way of considering the cost. The reported view, we have an increase of 4.7% at face value, but this is of course inflated by the IFRIC 21 effect and notably the surge of the contribution to the Single Resolution Fund. We have an important surge of EUR 80 million this quarter for the group. As you know, 75% are allocated to GBIS. The impact for GBIS alone is + EUR 60 million. 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 have been 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 is to see that on an online basis, the return on normative equity of GBIS stay at 10.2% in this kind of environment and this kind of situation. I think it is a fairly resilient performance in terms of profitability. Next question.
Okay, thank you. Next question from Mr. Guillaume Tiberghien from Exane. Sir.
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 three years. 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? The second question relates to actually your 2020 targets, which are admittedly not yet trusted by consensus. If you take your EUR 1.2 billion of net profit for Q1, assuming IFRIC is annualized. If you normalize cost of risk and maybe a bit of losses in the corporate center, you're only at EUR 4 billion of profit, and you need to go to EUR 5.2 billion. I'm really struggling to see how you can grow 30% from there.
Can you, maybe in terms of building blocks, try to explain to us how we go from here to there? Thank you.
Guillaume, the first question was on risk-weighted assets. What I can tell you is that we are targeting activities with overall lower profitability. It's a way to improve the return on equity of our different activities. 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, as you said, 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. We had presented nine fundamental initiatives. Can I say, when I look at the figures, first of all, the French retail, obviously, is in a kind of trough currently.
As we've said, we will see the progressive improvement of the revenue evolution, basically this year, towards the stabilization this year. Then an improvement, and a mechanical improvement, may I say, just by the normalization of the situation on the rates. Of course, with the cost evolution, which will benefit from all the efforts that we've made, and we are investing currently to effectively transform the networks, the back office, et cetera. The current contribution definitely does not represent what we expect in 2020. The cost of risk should not fundamentally vary from its current level in the French retail. Regarding our International Retail Banking fees and financial services, you remember the kind of jaws that we presented, 5.5% evolution of revenues, 4% on the cost. On this activity, we should have some normalization of the cost of risk, which remains extraordinarily low.
In fact, together, we've seen some write-backs, for example, in Romania. We are very confident that we will maintain a strong profitability, but with a pie, which will be significantly. Then on the GBIS, as I've said, here we talk about activities where, and I must say it was reflected by our U.S. statistics this quarter, where you don't have necessarily a linear increase, and the environment, of course, is important from that perspective. We will further develop, as I've said, in the long term with a very strict focus our activities. The paradox is that, yes, we are gaining market share. As I've said, I've never seen so high league tables on the European product in DCM, for example, than in this end of this first quarter. We are number 1 in all DCM issues for corporates in the Eurobond market.
We see the capacity to further extract value with our clients. We have more synergies to extract. On the cost side, the discipline will be there with significant changes, new systems, more offshoring, things which will structurally improve the profitability. The cost of risk should increase a little bit compared still with write-backs, but we have in mind low risk appetite overall, and it's the picture. 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 this quarter presenting. At least we've also commented on the Gross Operating Income, which appears to be pretty conservative this year. We are again confident that in a different environment, progressively, normalization of rates, we will effectively achieve this target with the benefit on top of that, I would like to highlight, of our effective allocation of capital. Just to finish, I'd like to say 10.9% Return on Tangible 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. I'm going to go back to CIB. I hear you about some of the mix impacts in your business. From conversations I've had, it sounds like even in structured products in Europe, quite a few of your competitors saw growth. 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? Was there any hedging imperfection that drove some sort of unexpected moves in Q1 that might reverse? Clearly that would help on the look forward. Linked to that, in what is normally the best quarter of the year, you've printed just over EUR 50 million of pre-provision profit, down 85% year-over-year in the global markets business. Costs are flat, revenues are down 17%.
It doesn't look like you can hold off taking more aggressive action on costs for long. 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 so far off kilter, you need to do something fast. How are you thinking about that?
I will maybe let Frank Drouet, head of our global capital markets, answer a little bit the first element of your question, which is related to structured products. On the cost, we have in this division, also a capacity to optimize the structure of the cost. 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. Second, as I said, there are some structural further action with IT investments, which will lead effectively to further cuts, for example, in support functions. We have plans, which are ambitious on that front, with also further offshoring. It will take a few quarters. It's not something you change from one quarter to the other. We have plan as well.
We have presented that actually GBIS will contribute to the effort on the productivity in the three-year strategy by, if I remember, something like EUR 300 million, I think under the control of Philippe. 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 on our activity on structural products, a strong part of our revenue is coming from distribution of structural products to the retails. It's true in Asia, it's true as well in Europe, compared maybe to the competition, we are more geared toward the distribution products, it's especially on the equity side. It's true that in Q1, while we are seeing a strong development of the activity in Asia, it was quiet in Europe. We think that there was the Basel II impact, also the fact that maybe compared to Asia and the U.S., there were less story in the equity market in the Q1 in Europe, which explain as well why we are seeing a relatively quiet activity on the distribution product in Europe.
Thank you. Next question.
Next question from Maxence Le Gouvello from Jefferies. Please go ahead.
Yeah. Good morning. I would have two questions. The first one is for Frédéric. The stock is down by 6% to 7% today. In your view, what are we missing that explain 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. Perhaps I will leave the second part of your question to Philippe. Maxence, may I notice that we are down by 5% because the European banks, which are also, I noticed, down today. 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. We have, yes, to do two things. First term, definitely the pace of the crisis, which means put behind the litigations. We have commented on that front. You might have noticed our communication, which is to say that regarding two of the three potential settlements we have on LIBOR and LIA, we are having very active discussions. We think we can potentially settle in the coming days or weeks.
Effectively, we've anticipated potential financial impact in line with the level of provisioning that we have previously communicated, around EUR 1 billion, within our general EUR 2.3 billion provision. That's one. Effectively, structurally, show and convince the market that we can deliver a resilient level of profitability, and effectively 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, with probably a mix in terms of the results, which does not reflect market expectations at the beginning of this year.
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 see improvements on the revenue and the cost and the cost efficiency going forward. As I've said, I don't expect a very significant deterioration of the cost of risk. It is just the beginning of the journey. We've always felt that, yes, we have to deliver consistently our 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 elaborate?
Yes, on cost. The increase of cost within the French retail this quarter is around plus 4.2%. Of course, we have to smooth the effect of IFRIC 21. We have also to neutralize some perimeter effect. A clean increase of those costs is around plus 3.2%. To simplify this debate, I think that the part from the, what we can call the natural drift of expenses, roughly around 9%, everything is more or less related to transformation. 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 Delphine Lee from JPMorgan. Madam, go ahead.
Yes, good morning. Thank you for taking my questions. Two 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 under 3%, because it looks like the consensus is expecting cost flatter. I'm just wondering where that's coming from. And the exceptional charge I assume is only the EUR 400 million, which you booked in Q4 last year. If you adjust for that, it looks like there is a slight increase. I'm just trying to understand a little bit of what's under that guidance. 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 of all, to comment on the dividend. I must say, we have announced a policy which is to have a payout ratio of 50%, a floor at EUR 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, Delphine. 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 return on equity, we described even earlier today, around 14%. Bottom line, we have to invest in the meantime. Yes, we took a specific provision in Q4. Let's be clear. From an accounting standpoint, provision is there to, let's say, to cover costs, or to cover investments are not producing any cash flow in the future. You can provision, for example, on HR voluntary redundancies. Some specific training or mobility costs, but everything around, let's say, adapting the network coverage, everything around working on the processes, is in the cost base.
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. Ultimately, between 2016 and 2020, this is consistent with the trajectory we share with you. Cost base between those two points, 2016, 2020, cost base containing cumulative increase below 1%. We will deliver into 2020 recurring savings of EUR 250 million. The point is that the benefit of reducing the footprint of branching, the benefit of reducing the number of people will be seen progressively. This is an ongoing process. Thank you. Next question.
Next question from Azzurra Guelfi from Citigroup. Sir, go ahead.
Hi, good morning. Two questions from me. One on the leverage ratio and one on litigation. I'll start the litigation first. It's a good progress, the one that you have made, on LIBOR and IBOR that you have indicated. Can you show 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 leverage ratio? Thank you.
Azzurra, we let Philippe comment on the leverage ratio, but there's no specific maintenance point.
In all scales resource fundamentally, like I would say, probably all banks. Regarding litigation, well, I've commented already on LIA and LIBOR. On the OFAC, we stay with the idea, yes, we should in the coming weeks and months. We pursue active discussions, but as it was the case three, four months ago, there will be probably a slight time gap between the three. But we remain optimistic to be able to put that behind us again in the coming weeks or months. Again, what I want just to say, we did not change our global provisioning in the first quarter. We try every time to assess well as we can the risk, and we did not change the level of provision. On the leverage ratio, Philippe? Yeah.
On leverage ratio, with the benefit of the decisions we made beginning of April, we have leverage ratio at 4.2. I think that we are completely in line with our European peers. On top of that, as you know, there is a wide philosophical debate on how you regulate banks in Europe, as 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 stress. If you analyze the leverage ratio of our peer group, we are completely in line with this peer group.
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 G-SIB surcharge. Ultimately, the threshold that will be applicable to Société Générale will be 3.5, and we want to maintain the bank, 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 of March. I was wondering if vis-à-vis the investment banking business, this had any impact on the level of business that you've seen, I mean, over the following six weeks. 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 a deliberate choice not to hire externally, 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. I would not please say it has had any significant impact. What is clear is that we wanted, in the process, to bring an answer relatively quickly, not to leave uncertainty for too long. That's why we had this process. Regarding internal versus external, let me say our general policy, I must say it seems to me it's the case for most companies
Is at the Deputy CEO or CEO level to try to bring people from internally. We pursue, of course, active policy to recruit, whether it's at 25, 30, 35, 40. If I may just take two of the appointments made, announced yesterday. Typically, when I look at Philippe Heim or William Kadouch, both of them were not in the bank 10 years ago. They have very different profile initially. They joined the bank. We built a career just to check their capacity to integrate and develop. We have now two managers who are 50. I think it's a better policy than trying to, by essence, recruit at such level.
I must say my experience, when you recruit, you have a 50% chance to make a mistake, because how do you really know how people integrate, their real capacity to share the ambition, the values, et cetera, the behaviors of a team? 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 and fixed income 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. 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. I just wondered, I would have expected this environment to be positive for your hedges, which were costly last year. I'd like to have more granularity on that, please. My second question was on the management fees. 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 Franck answer your first question. Jean-Francois, well, what was not expected is Didier Valet's departure. As I said, you can look at the profile of the Deputy CEOs when we presented. He was, as I said, the youngest.
Okay.
When you think about the succession plan, if there's one thing that the board has to ensure, probably, beyond the strategy, is that you have effectively a succession plan which works. The board had to face this situation, unexpected situation. As I've commented, one of the main objectives of the changes was to ensure continuity and capacity to deliver. I think that with people that I've just mentioned, who are absolutely seasoned bankers in Société Générale and fully committed to the plan, you have this guarantee of continuity. Franck, what can we say?
I think what we said last year was that flow activities were impacted by the low volatility environment. After that of the VIX, we have seen a peak of volatility and in all flow activities, we have seen a decrease of the revenue. We look at what happened after this event on the VIX, especially in Europe, the volatility is back to a very low level. In fact, the increase of volatility was just contained in the very small period of the quarter. Again, it's on the structural product activity. A low volatility environment is acceptable, even if we can take some conservative bias or protective bias, we can cost a little bit. It's mostly on the flow activity that we are able to make money when the volatility is rising.
Okay.
Next question.
All right. Thanks a lot.
Next question from Mr. Jon Peace from Credit Suisse. Go ahead.
Yes, thank you. The 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 EUR 88 million of negative hedging costs in the third quarter of last year? Or is it going to be flattish on a reported basis, ex PEL/CEL? 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.
Jon, first of all, Philippe, the guidance on the stabilization of revenues, does it include, yes, I think it includes.
Of course, it could. Yes, Jon. Yes, in fact, we have to adjust our swaps hedging the market book according to the IFRS rules. It has, let's say, a negative impact, if my memory is correct, of EUR 88 million in Q3. Taking into account, let's say, all the elements, in fact, we took in advance let's say some costs, negative NBI and all those elements bringing together, we progressively see a stabilization of the revenue base in 2018.
Didier Ogier on Russia?
Yes, Jon. On Russia, in fact, the sanction has a limited impact as basically it affects very few of our clients. Our growth is mainly driven by retail, which is unaffected by the sanctions. We confirm our objectives of 11% growth on the revenues and over 16% ROE by 2020.
Next question.
Next question from Madame Flora Bocahut from UBS. Madame, go ahead.
Hey. Hello. Thank you for taking my questions. The first one would be on the French retail. Obviously, you're guiding for flat revenue this year. I was wondering whether for 2019 we could expect something like +2% or above. The same thing on the cost. Obviously, you're guiding for +3 this year. I was wondering whether we could expect some cost decline as early as in 2019. For the second question, I'd like to come back on the CIB, sorry for that. I've seen in a video, this morning, an interview, I think it was Bloomberg Television, where you were saying that your structured product performance was in line with peers. I was a little bit puzzled with the comments you just provided during the call.
Can you actually confirm whether you're doing worse or better, or same as peer in structured products for the quarter? If it's worse, and if you think it's messy to relate it, are you seeing sign of the wait-and-see approach or the discovery process actually ending anytime soon? Thank you.
Lorraine, we are not disclosing figures for 2019 in the French retail. To be frank, I don't remember having said that it was such a specific comment during the interview. I think we have already commented again on the very specific business model on one hand, structured product versus flow, depending on the geography and on the structured product, probably the most significant part on the distribution side, with retail activities. I don't think 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 Coalition. It helps to understand exactly more in detail, the differences, beyond global figures. I think we can't comment more at this stage. Next question.
Thank you.
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, because 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. I was wondering if you had some similar assessment. 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 the second part of your questions on digitization. On your first part, again, I can't give you much more comment than we expect as we saw previously in previous years. At the end of the day, we pluses and minus a positive contribution on the Q1 from our reallocation of capital. Regarding acquisition, there will be very few of them, we will effectively benefit from the reallocation I've commented. There will be announcements this year, but I can't say more. Bernardo.
Our current program is, and we are talking specifically here about the French retail activities, which are the ones we were targeting when we talk about digitalization of the processes. The CIB part is much more digitalized already
We will redesign and digitalize about 85%-90%, most of our processes, by the end of 2019, of which 50% are already almost completed and will be completed before year-end. 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, first of all, to digitalize the front end of our relationship with the customers. Immediately after, we launched this digitalization process. 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 digitalized bank, which is called Boursorama, which is the leader in the market, which is growing at an extremely fast pace, and which is our most dynamic growth already today in the French retail.
Thank you. Next question.
Next question from Alexandre Coignard from Natixis. Go ahead.
Yes, Alex Coignard from Natixis. Two questions from my side as well. The first question is for Frédéric. Just wondering whether you think that it can then slow down the pace of provision for litigation, given the pretty confident stand you have for at least two of them. I think that you used to book some, like, EUR 300 million to EUR 400 million per year. Just wondering whether we should expect a similar level for this year. The second question is for Philippe. My understanding is that you will upgrade your guidance for the GOI in the corporate center for 2018. Will it be true also for 2020, which means that obviously you will increase your target of net profit 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 two of the three is in our blueprint. For the third one, there is more uncertainty at this stage because we are less advanced in the process. Let's say, as I've said, we have not added the provisioning. What I might say is we probably, for the final settlement, to act. We try to take all the information we have to adjust, as I've said, at this stage, we have not changed the provision. Philippe?
Yes. Alex, a few elements on the corporate center. We have indicated that we have a positive GOI this quarter on the corporate center, and can be explained by valuation adjustments. Pretty frequently, you have the sensitivity effects due to non-qualifying hedges. You have the usual effects, and we try to park those effects in the corporate center. They are volatile by nature. On the top of that, we are better than expected funding condition for the group. We may be linked to market conditions, also the positive impact of the fact that our rating has been upgraded. Let's say all those elements being brought together, we will see if we can revise our guidance, but too soon, too early, let's say in Q1 to have this discussion. We come back to you in Q2.
If we have relevant information for 2020, we'll come back to you as well.
Next question.
Thank you.
Next question from Stefan Stalmann 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. Quessette, 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? 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. Stefan, first of all, totally unrelated, and we will announce his successor in the coming days. Your second question, you want to understand in what circumstances the cost in 2020 could not be lower than 2019. You mean the level of certainty 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. 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. It gives you a figure for 2020, and we have now given you a figure for 2018, basically, a guidance, to illustrate that effectively, we are investing a lot. I think the two figures are there.
I think the problem from my perspective is that the 2020 guidance of your 1% CAGR gives me a higher cost number in 2020 than the now increased cost number for '18. It looks, your guidance implies that cost will continue to grow from '18 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. Go ahead.
Hi. Sorry to come back to equities, please, and apologies if I miss this somewhere. 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 autocalls in structured products in the last couple of years in a rising market drove some of the loss of market share, specifically in some parts that you'd seen in the past, but that a return to volatility would suit your hedging and structuring capabilities for more complex products. I'm just trying to understand why that hasn't been reflected this quarter. Sorry to retread old ground on the call.
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.
Omar, first question, autocalls. Yes, we said we have limited the growth of autocalls, and there was no change at the beginning of this quarter in terms of the nature of the structured product to be sold. Before you can also structure the products, you are precisely looking at different rates conditions also and the volatility conditions. First of all, we report like our 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 Prime Services revenues as a percentage relatively low, 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. Again, the French Retail.
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 progressively, you have two aspects. 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 for ECB is removed from minus 40 basis points progressively lifted to zero and return positive back there. We have a direct and positive impact on our liquidity buffer. As you know, we are very mindful of the quality of our origination. The point is not so much increasing wildly, let's say, the book, is the quality of the book and the capacity to cross sell. When you acquire a client, progressively equip the client, and this is precisely our strategy.
That's why the growth strategy that is the one in the French Retail is based largely on the development of our commissions, both retail side and on the corporate side, and how we intend to deliver our growth by 2020. Next question.
Next question from Kirill Pizheyerov from HSBC. Sir, please go ahead.
Yes, good afternoon, gents. Can I come back to costs and specifically the Single Resolution Fund? Are there any kind of levers you can pull to mitigate the inflation in those costs, or do those costs, those levies, continue to grow at this kind of pace for the next couple of years? 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 Single Resolution Fund costs when you allocate it out divisionally. Thank you.
Philippe, first of all, the mitigation elements.
Okay. We have an increase of EUR 80 million this quarter or this year. We take in this quarter on this contribution. I would say that roughly one quarter is related to a change in the way the Single Resolution Board ask us to compute. Let's say this is the contribution, 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 for all let's say, players according to the size of the balance sheet. There is no obvious way for us to mitigate this effect. With the monetary policy we have, we all see in the banking industry a surge of deposits.
On the client side, we can't pass that to the client because we have just Eurozone banks are paying for that. Most of our competitors do not pay. Unfortunately, it will end in 2024.
Yes.
At this stage, limited capacity to mitigate.
Next question.
Okay, understood. Thanks.
Next question from Anke Reingen, from Royal Bank of Canada. Sir.
Yes, from Royal Bank of Canada. It's Anke here. Yeah, two follow-up questions. Firstly, on French retail banking, I actually thought that your loan growth slightly accelerated, I was wondering if this is something you could see continuing as in sort of step up the volume growth there. 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. From the call, it sounds more that the underlying trends probably 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 your equities performance in Q2? Thank you.
Anke, I will leave Laurent with that comment on the evolution of the credit volumes. I think we have dynamic growth. We don't necessarily to change that, but he will comment. I think we can't say much more, Anke, than what we said. It's 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 yet near the year, but came back to very low level, and we adjust our reserve, we adjust the hedging policies to mitigate the risk, and we have a pretty conservative approach. 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 2018. When you see the outstanding, we are now at +3.5% and even almost +5% when we exclude local authorities. It means that we are progressively closing the gap with the market and the competitors. 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 see, this is a strategy. We focus the production on the top affluent clients. It means that 80% of the new home loans production is dedicated to patrimonial and high net worth people.
We want to continue this strategy, keeping in mind that now the level of renegotiation is at very low levels. 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.
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, two years below the average of the market. Next question.
Next question from Flora Bocahut 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 costs 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 of impact on your U.S. dollar funding costs. 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 series change that you made, but you don't disclose the NII between individuals and corporates anymore. Whether you could comment on the NIM between these two categories, please. Thank you.
Philippe, funding cost first.
On funding cost. Okay, on the funding cost on the corporate center, I was mentioning among other, let's say, the fact that we've seen a 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 widening of the US basis, widening of the spread. No impact on our activity, neither in terms of capacity to collect No impact on the activity. This is fairly not a hole for the business. No impact for the group.
The second point on the net interest margin for the two categories of clients.
Yes, we have amended our disclosure. We will come back to you on this aspect to give a more granularity on this space.
Thank you. Next question.
Next question from Pierre Chedeville from CM-CIC. Sir, please go ahead.
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 question. Regarding Lyxor, today we have good net inflows. I wanted to know if you are okay with the profitability of the business today, or if you consider that the profitability of the business has not reached your target, because we do not know exactly what it is for Lyxor, which is drawn with private banking. When we see the bottom line of private banking and Lyxor, it is still very weak. What is your view regarding Lyxor?
Regarding ALD, I am sorry, I had not the time to go through the slides of ALD so far. I was expecting a decrease in revenues due to the fact that the price per unit of car sales was supposed to decrease strongly quarter-on-quarter. It seems to me that the effect was not seen this quarter. I was wondering why. Thank you very much.
Pierre, I will let Didier or Gaël answer your question on residual values and impact on net banking income. We are confident with the Lyxor level of profitability because I think the bottom line itself does not reflect all the benefits for the group. Also, the benefit with some capital market activities related to our activities on the ETF. Yes, I must say, really, Lyxor is part of a strategic view that in the next five to seven 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. A lot of things will happen in Europe. For us, Lyxor should benefit from that. Didier, what can we say on the evolution of net banking income and the residual values?
I think that the dynamics of the net banking income of ALD is driven by used car sales. You remember that basically, ALD guided of used car sale per unit for 2018 between a range of EUR 200-EUR 400 profit, and it ends up in a decreasing trend, and it ends up for Q1 to establish at EUR 417 per unit. It's slightly above the yearly guidance that is confirmed for 2018. Basically, there is a full confirmation of the guidance of ALD, which is making the similar calls in the same time.
Thank you. Next question.
Next question from Nicholas Davey from Redburn. Sir, please go ahead.
Yeah, 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. Even if I adjust for that, it seems like costs are flat to up. Why is there not more cost flex here for the declining revenue line? Second question, one of your peers today discloses that they had two minor events of loss above VaR in Q1. 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 above VaR in the quarter? That might help. Thanks.
Nick, we don't disclose. I don't think there was any specific element regarding this thing. On the cost, we are also investing. If you take out the foreign exchange and the increase of FRU, we are just 1.6% for the global GBS business. As I said, there are investments. We are pursuing a policy of further cost efficiency. It's not the end of the story regarding that trip.
The bonus pool, was it adjusted down year-on-year? Just out of interest.
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. I must say, I think Société Générale 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.
Okay. Well, I think that's maybe for the day, because I think it was. 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.