Ladies and gentlemen, welcome to the Societe Generale Conference Call. Frederic Oudet, Chief Executive Officer and William Cadouch Cachacin, Deputy General Manager, Head of Finance, will present the Group's Q1 2021 Results. Gentlemen, please go ahead.
Hello, everyone. I hope you are all well. Thanks for attending this call on our Q1 results. As usual, we will present, William and I the detailed results, and we will enter into Q and A with our full management team sitting with me today. So let's turn first to Page 4, briefly the highlight of this quarter, which is, as you might have seen, an excellent quarter and good start of the year.
In terms of revenues, they are up 25% on a like for like basis and constant exchange rates. We have a strong performance Capital Markets sustained growth in financing and advisory activity and financial services and Resilient Activity in Retail. Let me highlight the discipline on the cost management. We have a slight decrease of minus 2.2% on a Lyding basis. It leads to very strong improvement of the costincome ratio.
Another element which is very important is the cost of risk, 21 basis points, very low, Despite clearly a very conservative approach regarding write backs on performing loans, we've maintained our buffer of S1 and S2. And the trends that we see allow us to give you a guidance, more precise guidance. We estimate that the cost of risk this year will be between 30 and 35 basis points, so a normalization taking place this year. Regarding the core Tier 1 ratio, it is up 10 basis points in spite of small impacts On the regulatory side as anticipated, let me say we concentrated our managerial time. Of course, I'm accompanying our clients, as we did in 2020, in a better economic environment, at least when we look at the recent data.
And of course, on delivering on our strategic initiatives, we have different projects, which will Creates a lot of value. The merger of our French networks, so called Vision 25, is on track. The development of our growth engine of Ceramard, which, for example, posted a record level of new clients In the Q1, more than 200,000 new clients. And for example, with ALD, in particular, with these Small and bolt on acquisitions, which are very value traded, the most recent one being the one announced with Banco Sabadell. And let me just, of course, remind you that on the 10th May, we will explain what we want to achieve in CIB to deliver A sustainable and profitable growth that's for the 10th May.
On the back of these results, let me So remind you that we have completed our refocusing program with the announcement of the disposal of Lixor Asset Management in April to Amundi. Next slide, Page 5. One word on ESG. ESG is everywhere. And as As you know, we are putting that at the center of our new strategic thinking for all our businesses.
We were among the 43 banks, international banks, which have just created a new alliance, Net 0 Banking Alliance, and we are committing to achieve carbon neutrality by 2,050 in our banking portfolios. Beyond this long term commitments, let me say, I think it's very important to give short term Objectives, which show illustrate the fact that we pivot and it's very clear when you look at our commitment In terms of the portfolio to finance extraction of oil and gas, it will go down by 10% between 2015 2019. And we have started the journey, in particular, regarding our U. S. Result based lending, which is going down by more than 25% in 2020.
You know we said we would stop this activity in particular. Beyond, let me highlight that we are recognized as one leader in innovation also around The development of new financial solutions, we are also ahead, I think, providing we are the 1st French bank to offer In our retail networks, 100 percent SRI, same range in open architecture. And of course, we will carry on Working on that journey, which is just starting. Now let I turn the floor to William, who will enter into the detailed figures. William, sorry George.
Thank you, Frederic, and good morning to all. Let me focus first on Page 7. So as Frederic said, We have a strong increase in our underlying net income to EUR 1,300,000,000. This translates into a return on tangible equity of 10.1%. Reported net income is also obviously strong here at EUR 814,000,000 despite the full impact of the IFRS charge.
The main driver behind the performance and the first key driver is the strong growth in the group pre provision operating income. As you can see on the slide, it is up more than twice relative to the Q1 of 2020, explained by Strong positive jaws. Revenues up 21%, 25%, in fact, adjusted for perimeter and foreign exchange impact. Costs are down 2.2%. That translates into a strong decrease in the cost to income ratio on an underlying basis.
To put this in perspective, So gross operating income is not only strongly up relative to the Q1 of 2020. It's also 16%, 1 6 Percent up relative to the Q1 of 2019 and that reflects strong What we've done in improving the breakeven point of the company. Page 8, that tells the whole story about what We have achieved in terms of cost this quarter. Cost again are down 2.2% relative The same period of last year, despite I'm talking here underlying costs, the pro rata Increase of the IFRS charge, the systemic tax, as you know, particularly the SRF is The contribution is going to be up. Overall, the IFRIC charge is up 21%.
And despite the fact that we obviously, as we had announced, Have an increase in variable cost to support growth in revenues across businesses. So that cost performance reflects The outcome of our ability to decrease run cost. Moving to the 2nd key explanation in the increase in the net income, cost of risk. Cost of risk As highlighted by Frederic, it's lower 21 basis points for the quarter, which is similar to what we had In 2019, and obviously, strongly down relative to last year. In absolute terms, this is EUR 2 €76,000,000 relative to €820,000,000 in Q1 2020.
The NPL ratio It's stable and still low at 3.3%. We saw a gross coverage rate at 51%. As Frederic said, We know we are in a position to specify the guidance pertaining to cost of risk. We see the cost of risk For 2021, between 30 or 30 and 35 basis points, which is consistent with through the cycle cost of risk. What explains the cost of risk this quarter is very much shown on the Page 10 of this presentation.
On the Left hand side, you see the limited defaults, I. E. Stage 3 at €300,000,000 which are very With what we had pre crisis, so we continue to not see an increase in defaults, and we don't have Many files in the pipeline, sir. And on the other hand, we still keep a very prudent approach on provisioning, which is what you have On the right hand side, we've kept quite intact our inventory of Stage 1, Stage 2 provisions. To put it in perspective, it's €3,600,000,000 equates to 2.8 times the 2019 S3 provisions.
Capital is strong and so are the other ratios, be it capital or liquidity. The core Tier 1 is up 10 basis points this quarter. Very simply put, a strong organic capital generation, 26 basis points, Some consumption regulatory. The TRIM within that is approximately 10 basis points, and then we have other regulatory headwinds In the quarter, and as you can see, we have on the pro form a calculation, Factoring the impact of the disposal of XL activities close to 20 basis points And the potential share buyback, which we intend to implement in the 2nd part of the year. Liquidity ratio are all strong as well.
The liquidity reserve is strong at EUR 237,000,000,000 Let me move on to the businesses, Starting as usual with French Retail. With one slight difference in the approach, we see that now we have decided to Make a specific focus on Societe Generale and Traditunore Networks, the new bank that will be created through the Vision 2025 project and Boursorama, for which we provide you with some specific data points. Starting with the French networks, Ex baux sur Mermen, what you have here is clearly what is the dynamic we see in this period, which we still Still a transitory period with impact on confinement. On the left hand side, we have the on balance sheet outstanding. As you can see, loan outstanding growth is primarily explained by the increase in corporate loans.
And In and of itself, this is associated by the strong increase in state guaranteed loans. All of that loan component have a more muted Growth, be it consumer lending or the corporate lending. At the same time, you have strong increase in deposit outstanding. That Explains some pressure we still see on the net interest margin. On the other hand, we have a very positive trend On financial savings across the board, whether this is life insurance, private banking and leading to strong financial commissions up to plus 7% as well as P and C and Personal Protection, you see a premium of 3%.
You see there another record quarter at 203 with 203 1,000 new clients and 2,800,000 client base. Actually, the speed of growth of Bosto Hammarie continues to accelerate, and you see on the right hand side of the page, very strong growth in outstanding. Here, you have the on balance sheet outstanding, but on the financial savings, you would find also very strong data. 56% of the life insurance net inflows are associated with UnitiLink products, which Thanks a lot about both for Amar quality and in terms of franchise. In a nutshell, for French Retail, Very resilient return despite pressure still pressure on the revenues.
You see 10.4% translating Into 11.3% return, excluding Bouyguesor Hammar. Net interest margin, as I said, we Still see some pressure given the dynamic I've described before. Commissions are up year on year, 0.8%. We still some pressure on services More than compensated by strong growth in financial fees and thanks to strong cost discipline and decrease in cost of risk, We end up with a high resilient return I just described. Turning to International Retail.
In some sense, you see on the balance sheet So I have the same dynamics as described largely for France, where loan outstanding grew, but particularly in Eastern Europe Or a staple like in Africa. In Russia, we have the specificity of some large corporates having redeemed their loans, But grow at a lower pace than free crisis. Clearly, we have the impact of confinement on production. At the same time, You have a strong increase in deposits and overall in the context where interest rate year on year, although positive has decreased, you have That impact on revenues. At the same time, you have a good trend in some countries on fees, And you see that some areas are going to grow the revenues sub Saharan Africa, the gain growth at 3%.
Overall, that combined with Strong discipline on cost and decrease in cost of risk leads to a strong return on normative equity of 14.6%. Financial Services, there again, after the past two quarters and particularly the 4th quarter, It's a story of growth, structural growth across the board. Financial Services to Corporate, I. E. ALD plus Leasing It's up 10%, very strong ALD this quarter again.
You can see that insurance is up by 4%, Particularly driven by life insurance and the trend. Again here, strong discipline on cost, decreasing cost of risk, the yield is 21 point 1% and in the nutshell for IBFS, we see that we are back to the type of return we had pre crisis at 17.4% for the quarter. Usually, we have between 17% 18% for that pillar. Turning now to CIB. This is clearly the area where the growth is the most impressive.
And starting with Global Markets and Investor You have growth across the board. Of course, global markets, you see the strong growth both in equities and FICC. In order to focus on normalized numbers, we will also provide you with comparisons relative To Q4 'twenty and relative to 2019, and you see that we have very strong quarters for both Equities and FICC. This is the best quarter for equities since 2015. That obviously benefits we're benefiting across the board from Favorable tailwinds in the market, but I'd like to point out and we will be happy to discuss that with Tagoviere Copa That it also reflects the strength of the franchises because its growth is made across the board, both in terms of products and geographies.
And despite the fact that we have gone through an important adjustment of FICC activities in 2019, An important adjustment of equities risk profile in 2020. Just one note on Securities Services. They had a strong growth in the quarter year on year. Financing and Advisory, a growth which is very consistent with the pattern that you have seen Over the years and the past quarters for financing and advisories, 3% when adjusted growth when adjusted for foreign exchange and perimeter impact. Let me remind you that Q1 2020 was particularly strong already.
So that's a good performance. And that's a performance achieved across the board, Financing activities grew. Asset backed products, of course, relative to a low base in Q1 2020 are up. Investment Banking is up In many areas, capital market has gained points, it's up double digit and Transaction Banking has resumed its growth trend at 5%. In Asset and Wealth Management, let me focus on Private Banking.
Private Banking revenues are down 1%, This is a bit tale of 2 stories. You have very positive commercial dynamics with positive net inflows at €2,000,000,000 across all geographies, Complicated by some pressure on net interest margin, let me remind you that our private banking operations Usually in countries where you have either negative rates or pressure on the interest rate. So in a nutshell, for Global Banking and Investor It's an outstanding quarter. The underlying return is 18%. The return even factoring in the full impact Of the EFRIC charge, which goes on GBA's shoulder for 63%, so this is the area where you have the most impact, It's 10%.
That's obviously due to a strong growth in revenue, 60% when adjusted for foreign exchange and perimeter impact, but also A strong discipline on underlying cost, despite what I've said before, which is some pro rata impact On the SRF charge increase and, of course, investment in variable component of the cost base. Underlying cost Decreased by 0.8% relative to the Q1 of 2020. Corporate Center, I'll be quick. You see the underlying gross operating income at minus 44 €1,000,000, which is a bit of a nonevent, operating expenses underlying are slightly down relative Q1 2020, the thing I would like to highlight is that we have decided now to report Transformation charge pertaining to the transformation for businesses and functions in the corporate center. This is To be to have a clearer communication and allow you to have a better comparison relative to peers In terms of underlying intrinsic profitability of businesses, what we see in the footnote the split of this €50,000,000 €50,000,000 that we have for the quarter across businesses.
I now turn again to Frederic for the conclusion. Thank you very much, William. Just as a conclusion, again, good start of the year. We are It will help us and going forward confirm that 2021 will be a year of strong rebound for Societe Generale. And again, our priority is really to pursue the campaign of clients as we see a progress selected of the Crisis and thanks in particular to the vaccinations.
And of course, execute perfectly well and in a disciplined way all our Projects, but we are confident on our ability to do so. Now we have finished the presentation. Floor is yours Let me just, of course, remind you this good habit to have 2 questions per person so that Everybody can have an opportunity to ask her or his question. Floor is yours.
Thank you. We have a first question from Jacques Henri Gaulard from Kepler Cheuvreux. Sir, please go ahead.
The first one, It's really seems that for the first time, Frederic and team, you have a lot of optionalities. You have a 13.5% CET1 ratio. You have done all your disposals. I completely appreciate what you're saying about accompanying the client base in 2021, but If you can project yourself and without giving away what your strategy would be, what do you reckon your priorities will be into deploying this money or This capital you have now or basically the activities you would like to put the focus, it's point 1. And the second point On Czech Republic, I know you had guided very well about the fact that you were expecting a trough in revenues in 2021 at your Investor Day Last year for Czech Republic, but it's still a big trough.
So do you maintain your guidance about the recovery In revenues, nonetheless, or is there anything in those results in Q1 to make you amend your guidance for the Czech Republic by 25?
Thank you. Hello, Jean Camry. I will let Philippe Henrique answer on the Czech Republic. On your first question, We have effectively a very sound capital base. We see for us the opportunity to use that To allocate capital to the businesses where we see more growth opportunities and profitability, of course, Absorb the regulatory headwinds without any problem.
And we have, of course, in line Basel IV there. We had communicated 115 basis point estimate in the Q4 and of course, pursue an attractive dividend policy, 50% of our underlying net profit every year. In terms of the businesses, Can I say my own view is that really we are entering into a period of Distraction for the Financial Services, and I would like to highlight first that we want to give more resources to Alternative business models that we have been able to develop in the past very successfully and where we see strong growth? And here, I have in mind, On one hand, something like both of them are but also ALD, which are delivering again very well. And again, here on Monday, we will give more flavor on what we want to do, for example, but We see a good development on the financing and advisory side with a growth in the coming years expected on Structure, energy transition, renewable.
And of course, in certain retail activities for certain clients where we're Provided of course the economies are rebounding and we are overall pretty optimistic. We can hear again finance resumption of the growth Of loans, in particular with corporate clients. So we have this capacity. We will be very selective. We want to ensure a good profitability, But we are confident on the stability to do that with such capital ratios.
Philippe, Czech Republic.
Yes. Good morning to all. So yes, that's true that Czech Republic It was really impacted by the lockdown and all the restriction on people, mobility and business activities, plus, of course, the decrease of the interest rate And this definitely explains the revenues, the decrease of revenues during this Q1. This being said, we do remain confident for various reasons. The first one is that there is definitely an improvement regarding the situation from an health The emergency state was terminated mid April.
2nd component is that there will be Continuity regarding the proactive economic policy. We expect the rates to remain Table for most of the year with a possible increase during the Q4. So that's for the external components, but I have also to add that actually during the Q1, The commercial performance was pretty good with an increase regarding lending, Including with the SAVs, we saw quite a good performance regarding financial peers. And you have seen also tight control regarding cost despite a significant investment program. So again, this is a very mature entity.
So with Really good monitoring of the situation, which is not easy, but at this stage, there is no change regarding our guidance.
Thank you. Next question.
Thank you. Next question from Giulia O'Rourianoto from Morgan Stanley. Madam,
Two questions from my side as well.
I will start with costs. So
a very strong delivery in the quarter and somehow different from some of your peers, which actually seeing growing costs. So I was wondering if you can give us a little bit more color around the initiatives that are really driving these cost savings because The ones that you used to talk about, I. E. The French Retail and the GBIS, are not expected that quickly. And in particular, is there any Investment that you are maybe postponing in order to deliver these cost results.
So that's my first question. Then secondly, another area of trends in the quarter, that was equities. And What do you see as a sustainable sort of level for SocGen on the equities revenue line given the volatility of the past year or so. And how do you see the activity continuing after Q1? Thank you.
Hello, Julia. I will leave William to answer on the cost. And it's true it's across the board. It's not Related to investment that we don't do, but it's the benefit of long term initiative and discipline, and we have more to do, as you said. And then start from here on the Equity business.
William? Hello, Julien. As Frederic said and we can Reassure you, there is no such thing such as quick fix like postponement on investment. If anything, We have a record level of IT investment. We have had that ever since 2018 and that continues.
And same with remediation, as we had said, we have Peak investments in remediations and it's meant to decrease starting 2022. So in fact, in 2021, we don't have The lack of investment, the lack of a better word on my side. But you have some key elements To consider, first of all, it's true that we have a component of the cost cuts we have launched for CID Last year, in addition to the full implementation of what had been launched in 2018, as we had said to you, we have a continuous Investment in the efficiency of central functions. But also, we have some areas where we continue to be very strict On hiring, on discretionary costs in the context remains uncertain and also with good habits taken by businesses and functions. On the other hand, it is clear that we have, like everyone, an increase In the tax levy, as I said, for us, the SRS contribution increase is material and an investment in variable costs, Which is very we have provisioned what we needed to provision according to the performance of the businesses.
So we don't under invest both CapEx and OpEx. Flavomir, on the Equity business.
Yes, good morning. I would say that The performance of this quarter is a mix of the last Phase of recovery, if you will, which has started, as you remember, as soon as last Q3, continued into Q4, and this is like The final stage of this recovery. So we have put behind the whole repositioning of the structured products offer in the space. We have been helped in terms of the speed of the adjustment, but also revenue preservation by Better market conditions, healthier markets in terms of margin in this structured product space in equities. And so the balance there in terms of the derisking versus the loss of revenues ended up better, significantly better than what we have expected At first, so that's one of the drivers.
2nd driver is the ability, the maintained of our business to capture the opportunities that were there in the markets in Q1 Linked to the healthy level of volatility, trends in the market, the whole recession trend and its impact on the equity market, Appetite Protection and all these good trends have driven an increase in our commercial activities and Your capacity for our business to capture this commercial opportunity. And then there was like an extra out Performance linked to the share market conditions and basically what we usually call the conditions, the hedging conditions, Which were much better than usually and were making a lot of things easier than they usually are. So you see there's some structural performance there that is here to stay and some Outperformance linked to the pure market conditions and more to come on Monday. Thank you. Next question?
Thank you. Next question from Delphine Lee from JPMorgan. Madam, please go ahead.
Yes. Good morning. So I just on my two questions. First of all, if I can come back on just very briefly On French Retail, if you could give us a bit of color around The guidance for full year, I think the last time we spoke in Q4, you seem to be a bit less negative. I mean, are you still seeing significant headwind on NII and on the stake guaranteed loans rates?
If you could provide color around the different components, the rate on the state guarantee loan that you're seeing versus Your outstanding book and the Telstra benefit as well, which we could expect in the coming quarters. And my second question is going back to cost of risk. This is a very big change In the outlook, in the guidance that you're giving us today and just wanted to get a bit more color of Where by division, where this is mainly coming from, is it mainly corporate and CIB and France retail? I mean, just If you could give us a bit more color on this change in confidence on the outlook. Thank you.
Hello, Delphine. So I will give the floor to Sebastien to answer your first question. I'll transfer Kevin, Giovanni Leboe on the risk. Yes, good morning, Delfin. So in our view, Q1 figures don't reflect The full year financial performance, we anticipate and we can expect for French Retail revenues.
We expect an improving momentum and increasing activity as we will exit progressively the different Lockdowns period. And so what does it mean? It means service fees should progressively tend towards the pre crisis level. Credit production should be stronger, which will boost fees. And in terms of net interest margin, again, Q1 doesn't represent the full year expected performance.
Nevertheless, in a still low and negative interest rate environment combined with huge increase In deposits, in close, we still expect remaining pressure on NIM in 2021, Keeping in mind that we would have, as I said, immediate effect with a better credit activity and a potential positive impact coming from TLTRO of urbanification by the end of the year, H2. So having said that, I think that it's fair to say we may anticipate a range between minus 1% and plus 1% versus 2020 in terms of revenues of French Retail. Do you need on the cost of risk?
Yes. Cost of risk, as you've Finite is very low this Q1 at 21 basis points, and it's almost exclusively Stage 3, meaning that we have Quite low cost of risk and low number of defaults, and this is across the board In all our businesses and geographies, we have kept unchanged Our total reserves on Stage 1, Stage 2, we have neutralized the output of our models, which would have Led to a reversal of over EUR 100,000,000 of Stage 1, Stage 2 Provisions. And we feel quite confident on the guidance based on Improving economic outlook, although our scenarios are still quite conservative. The quality of our portfolio. So you know we have constantly communicated on the fact that we are monitoring in a very proactive basis rating, migration, provisioning.
And the 3rd element of comfort is the stock of provisions and the prudent provisioning We had with Stage 1, Stage 2 stock of over EUR 3,500,000,000. And as William said, this is EUR 2.8 times Our cost of risk of 2019. So overall, the improvement of the economic outlook and very low cost Please allow us to refine our guidance, which was below 2020, and we are now quite confident on this 30 to 35 basis points for guidance.
Thank you. Next question? Thank you.
Thank you. Next question from Flora Borkaouc from Jefferies. Madam, please go ahead.
Yes, thank you. Thank you for taking my question and Congratulations on the strong results this morning. The first question I'd like to ask is going back to provisions and thanks actually for providing your guidance for 2021. I'd like to ask about 2022 as well. Would you actually agree with the statement that 2020 provisions were abnormally high.
And then we have 2021 provisions that are Abnormally low, and we can hope maybe that 2022 gets closer to the normalized level, which, And correct me if I'm wrong, would be roughly, what, 35, 40 basis points? So that's the first question. Then the second question is about the French Retail business. First of all, I'd like to have the confirmation whether you still account for the TLTRO funding cost at minus 67 basis points. And then asking how confident you are that later this year, You can expect also to get the benefit of the second beneficiation, the minus BRL100 also for the 2nd year.
Also considering that the corporate loan growth seems to be a bit lower at the moment. Thank you.
I will let Sebastien answer your second question. Floral, good morning. Can I just I think it's a little bit premature to comment on 2022? Let's see how things are developing, but I'm pretty optimistic. What I'm just Saying that you saw the support of governments in certain geographies, not everywhere.
Everywhere we have a low cost of risk. I tend to think that you will see a strong rebound on consumption in many geographies. So even in the sectors at risk, Tourism, restaurant, etcetera, you might see a good momentum in the coming months. And what is absolutely remarkable is the cost of risk with large corporates, which is 0. And the liquidity on the market, the fact that Private equity has done the job to recap when needed.
You might see actually a cost of risk, which might be lower What you say in 2022, I think it's premature. Let's wait. Our things is developing. We have been able to Refined the guidance that we gave for this year. It's not necessary that it's that low.
We have not written back anything of F1, F2. It is again that the economists actually are reacting better Probably than anticipated. So let's wait. Let's see how things are developing. Let's see about the vaccinations.
There's still some uncertainty, And we will be able beginning probably next year to give you more guidance for 2022. What is remarkable, stability curve NPL, 3.2%, There is again no deterioration from that point of view. Sebastien, on the French retail, the TLTRO. Yes, Good morning, Flora. So I confirm we take into account The positive impact of the TLTRO, but we don't take into account the, what we call, overbodification of TLTRO in Q1 In our Q1 results, we are nevertheless very confident in our capability to reach The benchmark target by the end of the year for this overburdification.
And let me just remind you, we will account for that Over 3 years, so it will be spread with potentially a catch up. Maybe we will see, but At your end, taking into account the beginning of the implementation of the TLTRO. So it might be that in the second half, You might see benefit from that. Next question?
Thank you. Next question from Omar Fall from Barclays. Sir, please go ahead.
Hi, there. Just a couple of questions for me. So firstly, you had excellent risk weighted asset Control in the quarter, despite higher volumes and activity in CIB. Could you give us Some color on that and maybe some guidance for underlying RWA growth for the rest of the year. Should we think of the usual 3% annualized pranum as a good base?
Then secondly, sorry to come back to the Equities business. But the restructuring and derisking that you announced for this business was meant to reduce Volatility. It seems to have reduced downside volatility this quarter. So is this kind of €850,000,000 of revenue The new level for us to base our forecast on and I did take into account the answers you made earlier, but Should we still be thinking of €600,000,000 in a normalized steady state? I'm using €600,000,000 because that's what you told us at the restructuring That you'd lose €200,000,000 to €250,000,000 in revenues from the 2019 base.
And obviously, that gap makes A big difference, the sustainable returns at group level. So I'd love some more color there. Thank you.
Hello, and our first, I will leave the floor to William on the restricted assets and again to Florentine on your question on the equities perspective. Hello, Omar. As you know, there are a bit of 3 components in the evolution of RWAs, which are used to 1 is the underlying business consumption, then you have the regulatory impact, particularly pertaining to models, So called 3 Metruinic. And then there's rate integration. We do differentiate in the disclosure, the 3 components.
On the first one, There is no change. I mean, the usual €5,000,000,000 to €6,000,000,000 RWA that business consume That we allow business to consume as an incremental envelope should be the type of things you could keep in mind. TRIM, we haven't changed the assumptions. So we had told you we were seeing roughly 30 basis points Of Trim Trimix consumption for the quarter for the year, we have consumed 10, so let's Let's keep 15%, 20% for the rest of the year in terms of basis point equivalent. You will see as well some potentially other The value impact stemming from CRR2, but I think that I'm eligible.
And then you have great integration. And this is the area where Potentially, we could have less than what we had expected. I think we had told you EUR 7,000,000,000
to EUR 8,000,000,000 for the
year In Q4, in fact, when you look at Q1, it is less than the pro rata of that. So this is potentially where we could have less, but it will allow us to keep some caution. We'll continue to be always cautious In any presentation, we make a capital. If anything, that reinforces our guidance that we should be well above Our midterm target of 200 basis points by the end of the year.
So let me start by saying that no, the Q1 performance cannot be the new benchmark across the cycle for the equities performance. You have to remember That Q1 was marked by exceptionally conducive market conditions, right, with high but stable volatility, Trends in the market, people looking for protection, looking for exposure at the same time. And so it was quite Unique, if you look at the last few years and you may have noticed that in Q2, volatility, for example, realized volatility crashed. And it's in the 6%, 7% area. And so this is something which obviously Drives also the performance in this business.
Now again, coming back to your comment on the repositioning of the Structured Products portfolio, it's it was a redesign. So the idea was that we wanted to run this Portfolio with probably a smaller nominal footprint in some products, but also a different approach in terms of risk management. So That with the lead came at a certain cost in terms of top line, which it has, but to a much lower extent than what we were expecting. So all I'm saying here is, yes, there is, in our view, a better protection on the downside, capacity to be active in this important Space, but at the end of the day, the equities are designed to take advantage of good market conditions, which is exactly what they did in Q1. But again, the market conditions were particularly strong in Q1.
Thank you. Next question. Sorry?
Yes. Sorry, sorry. Just a very quick follow-up. Historically, you told us that you were somewhat underweight Listed Products versus Structured Products, which I guess we know. You do quote high volumes in listed products.
Was that a meaningful Contributor here or really the structure the core structured products franchise was the driver?
So we'll talk about this some more on Monday, but the quick answer is, it's probably fair to say that it's more balanced Today, including also because of acquisitions we made typically in the EMC acquisition in Germany. And so the contribution of all of the business was pretty balanced.
Thank you. But we will be able to enter probably into more detail on Norway. Thank you. Next question?
Thank you. Next question from Pierre Chidevil from CIC. Sir, please go ahead.
Yes. Good morning. One question regarding Private Banking at the international level. It seems that things are going a little bit better. Can you confirm that?
And how do you see the evolution in Switzerland, In the UK, are you happy with the evolution and the restructuring? And can you give us a little bit more color On this division, which will be very alone now with the sales of Fixor. And my second question is, have you We began to initiate customers' actions to Transfer balance sheet deposits toward asset management savings Because we can see that short term deposits are very high Due to the COVID, how do you see the transformation of this, particularly in France, Toward
more, I would say, Yes, good morning, Pierre. So my first comment would be to say that Private Banking outside of France will not be alone, so to speak, in terms of supervision. For sure, that's a business, obviously, which is very important for us. It's 40% of the total AUM For Private Banking AUM. And as you just said, dynamics are good in terms Of AUM net new money.
And the restructuring of the franchise It goes, I mean, well according to our plan and especially in the UK, Which is positive. And as you may know also, we have decided To outsource to ASCO, which is the subsidiary of industrious wealth management, Our back office and IT services for Switzerland, Luxembourg And Monaco and UK, so basically all the franchises outside of France, the IT for all the franchises, Macrophys And our IT services will be outsourced. So it will help reducing the cost base The franchise, which is one of our key objectives. And in terms of revenues, I will not elaborate as William Yes, well, I've just given color on this point. Regarding your second question, clearly, One of our key objectives, and that's what we have asked the commercial teams To implement is to convince our clients to convert their side deposits Into more value added products such as life insurance or term deposits.
That's something which is very important and Also explain why despite a challenging environment, we have been able to post positive Growth in terms of fees during this quarter. So that's something key for us and the first priority As far as deposits are concerned, and we don't intend to charge fees on deposits for nuclear taggers, as an example, on the French market. Our pleasure, which is convince the clients to convert plus side effects. Thank you. Next question?
Thank you. Next question from Tarell El Mejjad from Bank of America. Sir, please go ahead.
Good morning, everyone. Two questions, please. One follow-up first on the French resale. So the guidance plus minus 1% in revenues, that includes the Bell Cell and also the Potential extra bonus from Telstra to be booked in second half. And the second question on CIB.
I mean, indeed, I would be very interested on Monday to understand The dynamics of how you managed to reduce the volatility downside and not at all on the upside. And also maybe we can start touch base on Now on the how come you've managed to so quickly fix the equities? Because when it was announced to us in last year, It sounded to be quite big projects that will go over few quarters, not 2 quarters. And is there any risk that you've been some stop and go strategy there? Or you feel really you've done the whole work and now you have the new game sheet?
And then just last question on GSiP, on Global Markets. It looks like you didn't accrue any variable comps for this amazing Q1 in equities. Is that still to come? Or is it just basically no cost for these revenues? Thank you.
Hello, Henrik. So first, Sebastien, and on your two questions regarding the equity market, and we took 3 quarters actually to give it, but it was On Swiftie and FVTV, I'm the first in the conversation. So perhaps, Sebastiena, first. Yes, Thad, when I talked about Between minus 1% and plus 1%, it's excluding PENCEL and it does Taking into account the over identification for 2021, again, In H2. And again, in a conservative way, I understand that because we are pricing over 3 years.
Probably you need to understand exactly what our peers are doing, whether they do it immediately, whether they do that just for over 1 year. So Again, on that side, we are in the most conservative approach spreading for also 2022 and the remaining of 2023.
So on the equity side, there were kind of 2 questions. How were we able We'll do this in 3 quarters, as Frederic said. I think this was a very well designed plan With a very specific targeted logic of rebalancing the portfolio towards A better mix of risks, if you will, while preserving, right, our leadership, our franchise There and the choices that we made were simply the right ones. And where we were helped To a tune which was higher than what we were expecting initially is the market conditions, right? Because a lot of these products Basically also in terms of lowering our nominal footprint benefited from simply conducive markets, Growing markets and higher valuations on the markets.
And so the speed of execution was helped by the market conditions, but the quality The outcome is linked to 1, a well designed plan and 2, as I said earlier, To better market conditions in terms of margins on these products because of a healthier competitive dynamic, I guess Some of our peers are thinking about their own footprint and their own way of addressing this market at the same time, which Again, translated into better margins on this market. So to the question of are we in a stop and go mode, absolutely not. This was executed very rigorously, and we're done with the restructuring, and we expect Our business to continue to function normally. Again, Q1 had embedded some extra performance linked to the quality Of the market conditions to the higher ease in hedging conditions, which helped the overall picture for the quarter. But again, we have experienced as much smaller revenue impact Because of the restructuring.
In terms of variable comps, no, it's not to come. It's taken into account in our current Cost in a normal way. So of course, there was a higher Significantly higher provision for variable comps in our Q1 cost figure for GBIS. And had this not Have happened, we would have had a decrease in our cost base to the same tune.
Thank you. Next question?
Thank you. Next question from Jean Francois Neuse from Goldman Sachs. Sir, please go ahead.
Hi there. Good morning. I just wanted to ask on French Retail net interest Margin in particular, so not net interest income, but just the margin component. And as for many banks, there continue to be pressure on the margin component. And I just wanted to understand what do you think the inertial effect, which are yet to play out or for how long and how much you think That there can be pressure on the actual level of margin sequentially.
And in particular, whether there is further pressure On the margin component further than 2021, so for example, from rates or from commercial margin pressure replacement effect or Any other components that is currently putting pressure on the margin? And the second thing I wanted to ask is just more broader On capital, recently, obviously, last year, there has been the quick fixes, etcetera. And then earlier in the year, there has been I think the EBA has Issued a document on alternative ways to calculate some of the Basel IV element, and there was these discussions on parallel stacks and All of these type of things that may help the industry reduce or mitigate these impacts, is there any discussions that you guys are taking part To or any views that you're willing to share with us on this particular item given your current Basel IV guidance? Thank you very much.
Hello, Jean Francois. I will let Sebastien answer knowing there are very, very different elements And the flow of deposits, how precisely we're able to also to have people investing elsewhere on the consumer level of rates, It's a pleasure, but Sebastien, if you can try to give some color and I will take the floor on your Berger question. Yes, Jean Francois. So as I said, Q1 doesn't represent the full year expected performance in terms of net interest margin. Having said that, I think we have 2 different components.
The first one With it which is out of our hands is the low and negative interest rate environment. It will continue to weigh on the NIM on the net interest margin For the coming months, at least. And on the opposite, It's there is all the different parameters we can have an action on and obviously Credit activity and also what I said about convincing our clients Convert fair side deposit into a more added value value added products. That's and there we are where we Put clearly a strong pressure on our commercial teams because it has a mitigating effect and impact On the net interest margin. So when we combine all of this, pressure We still exist on the NIM, but again, don't take Q1 as the view That doesn't reflect our view on the full year.
And regarding your second question On Basel, first, we still, of course, try to explain what is at stake with this Basel implementation, Whether it's on the financing side, on the capital market side, the need to have a level to infill. The fact that it's clear that in U. S, there will be no direct capital consequences and that the commission had said Initially, at least that there would be a moderate impact. So we carry on explaining all this. In terms of timing, I think it is likely now that it will not happen in 2023, just for the time of the process at The political level, as the commission has postponed by September, its own proposal.
So it's difficult to consider that it will be 2020 It is a lot very short timeframe to have the full adoption in the process of Europe. Regarding the calibration, If I may, we have taken, I think, the most reasonable assumption, the one which were taken by the SSM, if I'm not wrong. I speak on the Williams control in their study. ECB specific, The ECB also, let's say, probably the SSM. The parallel stack is more for the output Sure.
As far as I know and we will see, so it's not included in that calculation. So I think more for 2027, 2028. And we'll see effectively, There are certain countries which are working on this topic. We'll see how it goes. It's, I think, premature.
I can't tell you much more than that. So I think with the 115 basis points again is our best assumption based on There's an updated balance sheet, and that's what we can say at this stage. Next question?
Next question from Stefan Stohlman from Autonomous Research. Sir, please go ahead.
Yes. Good morning, gentlemen. Thanks for taking my questions. I wanted to start with your return on tangible equity, which was around 10% this quarter, if you normalize this properly. And you can probably take some haircuts for the equities And maybe cost of risk, but you're probably still at around 9%.
In light of this set of results, how do you think about your Medium term ROE or tangible book value ambitions, I was wondering if you could Comment on that, please. And the second question relates to your cost of risk guidance. Does it include any meaningful releases from Stage 1 and Stage 2 provisions during 2021? Or would any of that Come on top of this guidance, please. Thank you very much.
Stefan, I will take your two questions. First, We will communicate in due course how we see the midterm return on tangible equity for the group. But as you have highlighted, first, it gives you it illustrates the capacity to meet a pretty acceptable one. And clearly, if the Equity business has done tremendously well and as we said, probably benefiting from exceptional conditions, on the other hand, All the businesses are still to improve and recover. And of course, on top of that, Boursorama, which is still accelerating its development, we have in mind That is, we generated strong profit in 2025.
So there are many levers, which we have still in our hands, Provided we executed well and mine also for the combination of the two networks. So I mean, again, we will communicate in due course probably Beginning of next year, first half, because I want to wait for that Basel IV. Now we want to wait to have more clarity on the economy, on the Basel IV program proposal by the commission. So we'll have all the elements and regions To communicate that more in detail, but of course, it gives you an indication of the kind of return we can achieve, putting There might be pluses and minuses, but at least it gives you some indication. 2nd, can I say we are not Plugging a significant write backs?
I mean, I don't know what you consider significant write backs. We have seen very few defaults. It's fair to say what we have more or less in mind is potentially with the exit of the crisis, perhaps a slight increase of the defaults, But the moderate one and in particular, looking at the large corporates, it's remarkable to see the absence of any significant cost of risk. And then probably potentially some minor mechanical withdrawal write backs, but not something massive. And the idea Would be probably to keep the bulk beyond 2021.
So we are going to work on that In the coming months to see exactly how things are developing, as Jonny said, we were very conservative by not Writing back more than EUR 100,000,000 of S1H2 this quarter, we wanted to keep that going forward and then we'll see how things are developing. But There is a message of confidence, which goes beyond the improvement of the economy. So again, what we see concretely with our portfolio. Next question.
Next question from Anke Reingen from RBC Capital Markets. Madam, please go ahead.
Yes. Thank you very much for my questions. Actually, just more like 2 follow-up questions. Firstly, on the equities Performance. I'm sorry if you come back, but I don't want to ask on Monday.
Is there like any meaningful contribution from like hedging or reserve I mean, you gave us you said last year. I just want to make sure there's not a material benefit this quarter. I heard you mentioned it Earlier, but just making sure it's more underlying performance rather than reserve releases. And then secondly, on your capital ratio, I mean, you're well above your target, and I hear your comments about uncertainty. But is the fair assumption that The 50% payout ratio might look a bit conservative when you draw up your next plan.
Thank you very much.
So, Henk, On the equity, the reserve, is there nothing that significant? It's purely underlying performance. Yes. So nothing significant there. And listen, the 50% payout ratio, I mean, take the math With a reasonable capacity to finance growth, with the Basel IV impact, with the 50%, I think at this stage at least 50% is kind, if I may say, of standard payout ratio, Which gives a good yield to investors.
At this stage, at least we don't change that perspective. So Let's wait to see more on the regulatory side and the environment, but we have also in mind to fuel the business growth If there is an opportunity for Nelclever M and A, why not to? I mean, so I don't think we are going to change that immediately and we think we are really In line with our peers on that front, so it should give you a lot of comfort for the coming years on all these items. That's what I can answer, Angela.
Thank you very much. Thank you.
Next question?
Thank you. Next question from Mathieu Clark from Magiobanca. Sir, please go ahead.
Good morning. So Two questions from me. First one is on the French retail revenue commentary. So I'm struggling a bit to reconcile the guidance of this Plus or minus 1% corridor for the full year with the guidance that the Q1 doesn't represent The run rate for the year, because if I annualize 1st quarter revenues, then already you're at the top end of that, Plus 1% compared to the full year of 2020. So I'm just curious why you're How to reconcile those or why you're not more optimistic than that plusminus 1% full year guidance given How impacted last year was by the crisis?
And then second question is on International Retail Banking revenues. They were down quite a bit, 1st quarter versus 4th quarter in Russia and in Africa. I'm just wondering Whether there were any particular lumpy seasonal effects there and whether we should think of the Q1 as being the run rate level For Africa and for Russia or whether we might expect a recovery as the year progresses. Thank you.
Hello, Matthew. On the first question, I will turn to Sebastien and then Philippe Eric on the international retail. Yes, Mathieu, minus 1, plus 1 takes into account all the different parameters, Yes, including, as I said, a continuous pressure on net interest margin and especially On the deposit margin because of the low interest rates and the deposits increased deposits. So that's our view on the full year and again, including all parameters And probably stronger fees, services and financial fees, but This pressure weighing on the NIM in the coming months.
But how then why then would Subsequent quarters not be worse than the Q1. You seem to be saying that the Q1 doesn't represent the potential for French Retail. You talk about a rebound as activity increases when lockdown ends, etcetera. So I guess my question is, are things getting better or getting worse
Listen, I think we are still considering a dictate Different scenarios on different parameters. We are a bit prudent. We want to wait We see how things are developing on the economy. Again, there's probably a touch of conservatism, We are realistic on the again, for example, deposit stay or even further increase, it might steer away On the interest margin, so we remain a little bit cautious if you wish. We are again same thing refining our guidance, But it's still work in progress.
Let's wait for the second quarter, see how the economy is responding. We remain a little bit prudent. Understood. Thank you. So we prefer to be on that side.
And Mathieu, if I may, I think you have to take and I know you do that, the big picture. What we've said in Q4 That we are confident that the revenues at Group level will rebound relative to 2020 consistent with the positive jaws. What you said as well is that we expect that to happen across all businesses with one question, which is, as you heard, This may be in the more mature retail, a fresh retail, it could be minus 1, plus 1. So overall, it doesn't jeopardize at all The overall picture that we've talked about, which is a strong rebound in revenues potential. Philippe, on International Retail, yes,
thanks for the question. So regarding Russia, Regarding the revenues, first, you have to take into account that they have been impacted by a new accounting Regarding some fees which are paid to the car dealers as part of our consumer finance business, Previously, these fees were accrued and now they are paid upfront. So it has some base effect. There is also an overburdeis effect when you look at the performance of Russia. It's that the Q1 of 2020 was impacted by very important credit lines.
We've drawn by Corporate as precautionary liquidity buffer.
All this put aside,
it's again Difficult context, the performance of Asia Russia was quite good. I think it was strong increase in mortgage, I saw strong increase in consumer loans and as you have seen a strong deposit collection. I have also to say that we are completely on track regarding their strategic initiatives. I can share with you, for example, One number because you know that we are also tracking all our progress regarding digital transition. And in the Q1 for Rosebank, 48% of the core products were sold in full Digital mode.
So really, we are on track regarding this transformation. Regarding Africa, Strong momentum in the sub African countries. So Slightly less regarding Mediterranean Basin, but when you look at all the metrics, You know, we are also on track. So it was probably a little bit slower for beginning of the year, But there is absolutely no reason to change our guidelines and our perspectives in these areas. There is definitely some movement of the activities, and I think we will catch it.
Thank you. Next question?
Great. Thanks.
Thank you. We have no more questions.
Okay. Well, thank you very much Thank you for attending this call and have a very nice day. Speak to you soon. Thank you. Bye bye.
Thank you, ladies and gentlemen. This concludes the conference call. Thank you all for your participation. You may now disconnect.