Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer, and William Kadouch-Chassaing, Deputy General Manager, Head of Finance, will present the group's first quarter 2021 results. Gentlemen, please go ahead.
Hello, everyone. I hope you are all well. Thanks for attending this call on our first quarter results. As usual, we will present, William and I, the detailed results, and we will enter into Q&A with our full management team sitting with me today. Let's turn first to page four, 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 the like-to-like basis, and constant exchange rate. 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 -2.2% on the underlying basis. It leads to very strong improvement of the cost-income 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 more precise guidance. We estimate that the cost of risk this year will be between 30 and 35 basis points. A normalization taking place this year. Regarding the Core Tier 1 ratio, it is up 10 basis points in spite of a small impact on the regulatory side as anticipated. Let me say we concentrated our managerial time, of course, on accompanying our clients, as we did in 2020, in a better economic environment, at least when we look at the recent data. Of course, on delivering on our strategic initiative.
We have different projects, which will create a lot of value. The merger of our French networks, so-called Vision 2025, is on track. The development of our growth engine, with Boursorama, which for example, posted a record level of new clients in the first quarter, more than 200,000 new clients. For example, with ALD, in particular, with these small bolt-on acquisitions, which are very value creative, the most recent one being the one announced with Banco Sabadell . Let me just, of course, remind you that on the 10th of May, we will explain what we want to achieve from CIB to deliver a sustainable and profitable growth. That's for the 10th of May, on the back of these results. Let me also remind you that we have completed our refocusing program with the announcement of the disposal of Lyxor Asset Management in April to Amundi.
Next slide, page five. One word on ESG. ESG is everywhere, and as you know, we are putting that at the center of our new strategic thinking for all our businesses. We were among the 43 international banks which have just created a new alliance, Net Zero Banking Alliance, and we are committing to achieve carbon neutrality by 2050 in our banking portfolios. Beyond these long-term commitments, let me say, I think it's very important to give short-term objectives, which 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 and 2019. We have started the journey, in particular, regarding our U.S. Reserve-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 right around the development of new financial solutions. We are also ahead, I think, we are the first French bank to offer in our retail networks a 100% SRI saving range in open architecture. Of course, we will carry on working on that journey, which is just starting. Now, I turn the floor to William, who will enter into the detailed figures. William, floor is yours.
Thank you, Frédéric. Good morning to all. Let me focus first on page seven. As Frédéric said, we have a strong increase in our underlying net income to EUR 1.3 billion. This translates into a return on tangible equity of 10.1%. Reported net income is also obviously strong here at EUR 814 million, despite the full impact of the IFRIC charge. The main driver behind that performance, 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 first quarter of 2020, explained by strong positive growth, revenues up 21%, 25%, in fact, adjusted for perimeter and for an 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, gross operating income is not only strongly up relative to the first quarter of 2020, it's also 16% up relative to the first quarter of 2019, and that reflects strong effort we've done in improving the break-even point of the company. Page eight, that tells the whole story about what we have achieved in terms of cost this quarter. Costs, again, are down 2.2% relative to the same period of last year, despite, I'm talking here underlying cost, the pro rata increase of the IFRIC charge, the systemic tax. As you know, particularly the SRF contribution is strongly up. Overall, the IFRIC charge is up 21%. Despite the fact that we obviously, as we had announced, have an increase in variable cost to support growth in revenues across businesses. That cost performance reflects the outcome of our ability to decrease run cost.
Moving to the second key explanation in the increase in the net income, cost of risk. Cost of risk, as highlighted by Frédéric, is low at 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 276 million relative to EUR 820 million in Q1 2020. The NPL ratio is stable and still low at 3.3%, with a gross coverage rate at 51%. As Frédéric said, we now are in a position to specify the guidance pertaining to cost of risk. We see the cost of risk for 2021 between 30 and 35 basis points, which is consistent with the 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 limited defaults, i.e., Stage 3 at EUR 300 million, which are very consistent with what we had pre-crisis. We continue to not see an increase in defaults, and we don't have many files in the pipe either. 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 quasi-intact our inventory of Stage 1, Stage 2 provisions. To put this in perspective, it's EUR 3.6 billion, equates to 2.8 x the 2019 Stage 3 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, plus 26 basis points, some consumption regulatory.
The TRIM within that is approximately 10 basis points, then we have other regulatory headwinds in the quarter. As you can see, we have, on the pro forma calculation, factoring the impact of the disposal of retail activities, close to 20 basis points, and the potential share buyback, which we intend to implement in the second half of the year. Liquidity ratio are all strong as well. The liquidity reserve is strong at EUR 237 billion. Let me move on to the businesses, starting as usual with French retail. With one slight difference in the approach, which is that now we have decided to make a specific focus on Société Générale and Crédit du Nord 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 Boursorama.
What you have here is clearly what is the dynamic we see in this period, which is 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 other loan components have a more muted growth, be it consumer lending or other 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, you have a very positive French financial savings across the board, whether this is life insurance, private banking, and leading to strong financial commissions up to +7%, as well as the P&C and personal protection, you see a premium of 3%. Boursorama. You see there another record quarter with 203,000 new clients and 2.8 million client base. Actually, the speed of growth of Boursorama 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. On the financial savings, you would find also very strong data. 56% of the life insurance net inflows are associated with unit- linked products, which tells a lot about Boursorama quality in terms of franchise. In a nutshell, for French Retail, very resilient return despite still pressure on the revenues.
You see a 10.4% translating into 11.3% return excluding Boursorama. Net interest margin, as I said, still see some pressure given the dynamic I've described before. Commissions are up year-over-year, 0.8%. We see some pressure on service fees, more than compensated by strong growth in financial fees. Thanks to strong cost discipline and decreasing 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 side, the same dynamic as described largely for France, where loan outstanding grew, but particularly in Eastern Europe, or are stable like in Africa. In Russia, we have the specificity of some large corporates, I think, redeemed their loans, but grew at a lower pace than pre-crisis. We have the impact of confinement on production.
At the same time, we have a strong increase in deposits and overall in the context where interest rate year-over-year, although positive, have decreased, you have that impact on revenues. At the same time, you have a good trend in some countries on fees, you see that some areas are able to grow their revenues, Sub-Saharan Africa, again, grows at 3%. 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, particularly the fourth quarter, is a story of growth, structural growth across the board. Financial services to corporate, i.e., ALD truck leasing is up 10%, very strong ALD this quarter again. You can see that insurance is up 4%, particularly driven by life insurance and the trend.
Again here, strong discipline on cost, decreasing cost of risk. The yield is 21.1%. In a nutshell, for IDFS, you 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% and 18% for that pillar. Turning now to CIB. This is clearly the area where the growth is the most impressive. Starting with global market and investor services, you have growth across the board. Of course, global markets you see the strong growth both in equities and FIC. In order to focus on normalized numbers, we will also provide you with comparisons relative to Q4 2020 and relative to 2019. You see that we have very strong quarters for both equities and FIC. This is the best quarter for equities since 2015.
Obviously, we're benefiting across the board from favorable tailwinds in the market. I like to point out, and we will be happy to discuss that with Slawomir Krupa, 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 FIC 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-over-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 advisory, 3% when adjusted growth, when adjusted for foreign exchange and perimeter impact.
Let me remind you that Q1 2020 was particularly strong already. That's a good performance. That's a performance achieved across the board. Financing activities grow. Asset-backed products, of course, relative to a low base in first quarter 2020, are up. Investment banking is up in many areas. Capital market and acquisition financing is up double-digit. 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 a tale of two stories. You have very positive commercial dynamics with positive net inflows at EUR 2 billion across all geographies, compensated by some pressure on net interest margin. Let me remind you that our private banking operations are usually in countries where you have either negative rates or pressure on the interest rate.
In a nutshell, for Global Banking and Investor Solutions, an outstanding quarter. The underlying return is 18%. The return, even factoring in the full impact of the IFRIC charge, which goes on GBIS shoulder for about 63%, this is the area where you have the most impact, is 10%. That obviously due to a strong growth in revenue, 60% when adjusted for foreign exchange and perimeter impact, but also, a strong discipline on underlying costs, 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 costs decreased by 0.8% relative to the first quarter of 2020. Corporate center, I'll be quick. You see the underlying gross operating income at EUR -44 million, which is a bit of a non-event. Operating expenses underlying are slightly down relative to Q1 2020.
The thing I would like to highlight is that we have decided now to report transformation charge pertaining to the transformation of our businesses and functions in the corporate center. This is to have a clearer communication and allow you to have a better comparison relative to peers in terms of underlying intrinsic profitability of businesses. We see in the footnote the split of the EUR 50 million that we have for the quarter across businesses. I now turn again to Frédéric for the conclusion.
Thank you very much, William. Just as a conclusion, again, good start of the year. We are considering it will help us, and going forward, confirm that 2021 will be a year of strong rebound for Société Générale. Again, our priority is really to pursue the accompaniment of clients, as we see a progressive exit of the crisis, and thanks in particular to the vaccinations. Of course, execute perfectly well and in a disciplined way all our projects, but we are confident on our ability to do so. We have finished the presentation. Floor is yours for question. Let me just, of course, remind you this good habit to have two questions per person so that everybody can have an opportunity to ask her or his question. Floor is yours.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. We have a first question from Jacques-Henri Gaulard from Kepler Cheuvreux, so please go ahead.
The first one, it really seems that for the first time, Frederic and team, you have a lot of optionalities. You have a 13.5% CT1 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 one. The second point would be 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. It's still a big trough. 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 2025? Thank you.
Hello, Jacques-Henri. I will let Philippe Aymerich 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 capital to allocate capital to the businesses where we see more growth opportunities and profitability. Absorb the regulatory headwinds without any problem. We have, of course, in mind Basel IV there. We had communicated 115 basis points estimate in the fourth quarter. 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 disruption 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. Here, I have in mind, on one hand, something like Boursorama, but also ALD, which are delivering again very well. Beyond, 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 infrastructure, energy, transition, renewable.
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 here again, finance a resumption of the growth of loans, in particular with corporate clients. We have this capacity, we will be very selective. We want to ensure a good profitability, but we are confident on this ability to do that with such capital ratios. Philippe, Czech Republic?
Yes, good morning to all. That's true that Czech Republic was really impacted by the lockdown and all the restriction on people, mobility, and business activities. Of course, the stress of the interest rate environment, and this definitely explains the decrease of revenues during this first quarter. This being said, we do remain confident for various reasons. The first one is that there is definitely an improvement regarding the situation from a health standpoint. The emergency state was terminated mid-April. Second component is that there will be a continuity regarding the proactive economic policy. We expect the rates to remain stable for most of the year, with a possible increase during the fourth quarter. That's for the external components.
I have also to add that actually, during the first quarter, the commercial performance was pretty good with an increase regarding lending including with the SMEs. We've also quite a good performance regarding financial fees. You have seen also tight control regarding cost despite a significant investment program. Again, this is a very mature entity. 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 Aurora Miotto from Morgan Stanley. Madam, please go ahead.
Yes. Hi, good morning. Two questions from my side as well. I will start with costs. A very strong delivery in the quarter, and somehow different from some of your peers, which are actually seeing growing costs. 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. In particular, is there any investment that you are maybe postponing in order to deliver these cost results? That's my first question. Secondly, another area of strength 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?
How do you see the activity continuing after Q1? Thank you.
Hello, Giulia. I will leave William to answer on the cost. 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 a long-term initiative and discipline, and we have more to do, as you said. It's up to me on the equity business. William?
Hello, Giulia. As Frédéric said, we can reassure you, there is no such thing such as a quick fix like postponement on investment. If anything, we have a record level of IT investment, we have had that ever since 2018, that continues. Same with remediation, as we had said. We have big investments in remediations, it's meant to decrease starting 2022. In fact, in 2021, you don't have the lack of investment, the lack of a better word on my side. You have some key elements to consider. First of all, it's true that we have a component of the cost cut we have launched for CIB 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.
Also we have some areas where we continue to be very strict on hiring, on discretionary costs in the context that 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 SRF contribution increase is material, and an investment in variable costs. We have provisioned what we needed to provision according to the performance of the businesses. We don't under-invest both CapEx and OpEx.
Sławomir 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 started, as you remember, as soon as last Q3, continued into Q4, and this is the final stage of this recovery. 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. The balance there in terms of the de-risking versus the loss of revenues ended up better, significantly better than what we have expected at first. That's one of the drivers.
Second driver is the ability, the maintained ability of our business to capture the opportunities that were there in the market in Q1, linked to the healthy level of volatility, trends in the market, the whole reflation trend, and its impact on the equity market, appetite for protection and all these good trends have driven an increase in our commercial activities and a clear capacity for our business to capture this commercial opportunity. There was an extra outperformance linked to the sheer market conditions and basically what we usually call the hedging conditions, which were much better than usually and were making a lot of things easier than they usually are. 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 JP Morgan. Madam, please go ahead.
Yes, good morning. Just two questions. First of all, if I can come back 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 with Q4, you seemed to be a bit less negative. Are you still seeing significant headwind on NII, and on the state guarantee loans rates? If you could provide color around the different components, the rate on the state guarantee loans that you are seeing versus your outstanding book and the telco benefit as well, which we could expect in coming quarters. My second question is going back to cost of risk. This is a very big change in the outlook, in the guidance that you are giving us today.
Just want to get a bit more color of by division, where this is mainly coming from, this mainly corporates and CIB and French retail. If you could give us a bit more color on this change in confidence on the outlook. Thank you.
Hello, Delphine. I will give the floor to Sébastien to answer your first question on French retail, and Diony Lebot on the risk.
Yes. Good morning, Delphine. 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, an increasing activity, as we will exit progressively, the different lockdowns period. What does it mean? It means service fees should progressively tend towards their pre-crisis level. Credit production should be stronger, which will boost fees. 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 a usual increase in deposits inflows, we still expect remaining pressure on NIM in 2021, keeping in mind that we would have, as I said, mitigating effect with a better credit activity and a potential positive impact coming from TLTRO of overbonification by the end of the year, H2.
Having said that, I think that it's fair to say we may anticipate a range between ±1% versus 2020 in terms of revenues for French retail.
Diony on the cost of risk.
Yes. Cost of risk, as you've seen, is very low this first quarter at 21 basis points. It's almost exclusively Stage 3, meaning that we have a quite low cost of risk and low number of defaults. 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 million of Stage 1, Stage 2 provisions. We feel quite confident of the guidance based on improving economic outlook, although our scenarios are still quite conservative. The quality of our portfolio, as you know, we have practically communicated on the fact that we are monitoring in a very proactive basis, linking migration to provisioning.
The third element of comfort is the stock of provisions, the very prudent provisioning we had with Stage 1, Stage 2, a stock of over EUR 3.5 billion. As William said, this is 2.8 x our cost of risk of 2019. Overall, the improvement of the economic outlook and very low cost of risk allow us to refine our guidance, which was below 2020, and we are now quite confident of this 30 to 35 basis points for guidance.
Thank you. Next question.
Thank you. Next question from Flora Bocahut from Jefferies. Madam, please go ahead.
Yes, thank you. Thank you for taking my question, congratulations on the strong results this morning. The first question I'd like to ask is going back to provisions, 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? We have 2021 provisions that are abnormally low, 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? That's the first question. 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 - 67 basis points.
Asking, how confident you are that later this year, you can expect also to get the benefit of the second over-bonification, the - 100 basis points also for the second year. Considering that the corporate loan growth seems to be a bit lower at the moment. Thank you.
I will let Sébastien answer your second question, Flora. Good morning. I think it's a little bit premature to comment on 2022. Let's see how things are developing. 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 look at the risk. I tend to think that you will see a strong rebound on consumption in many geographies. Even in the sectors at risk, tourism, restaurant, et cetera, you might see a good momentum in the coming months. What is absolutely remarkable is the cost of risk with large corporates, which is zero. 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 also than what you say in 2022.
I think it's premature. Let's wait how things are developing. We have been able to refine the guidance that we gave for this year. It's not necessary that it's that low. We have not written back anything of S1, S2. It is again, that the economies actually are reacting better probably than anticipated. 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 of NPL, 3.3%. There is, again, no deterioration from that point of view. Sébastien, on the French retail, the TLTRO.
Yes. Good morning, Flora. I confirm, we take into account positive impact of the TLTRO, but we don't take into account the, what we call over-bonification 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 over-bonification. Let me just remind you, we will account for that over three years, so it will be spread with potentially a catch-up. Maybe we will see that at year-end, taking into account the beginning of the implementation of the TLTRO. It might be that in the second half, you might see a 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 from me, sir. 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 plan as a good base? Secondly, sorry to come back to the equities business, but the restructuring and de-risking that you announced for this business was meant to reduce volatility. It seems to have reduced downside volatility this quarter. Is this kind of EUR 850 million of revenue the new level for us to base our forecasts on? I did take into account the answers you made earlier, but should we still be thinking of EUR 600 million normalized, steady state?
I'm using 600 because that's when you told us at the restructuring announcement that you'd lose EUR 200 million to EUR 250 million in revenues from the 2019 base. Obviously, that gap makes a big difference to the sustainable returns at group level. I'd love some more color there. Thank you.
Hello, Omar. First, I will leave the floor to William on the risk-weighted asset, and again, to Slawomir on your question on the equities perspective.
Hello, Omar. As you know, there are three components in the evolution of RWA, which you used two. One is your underlying business consumption. You have the regulatory impact, particularly pertaining to models, so-called TRIM and TRIN. There is ratings migration. We do differentiate in the disclosure, the three components. On the first one, there is no change. I mean, the usual EUR 5 billion-EUR 6 billion RWA 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. We had told you we were seeing roughly 30 basis points of TRIM, TRIN consumption for the year. We have consumed 10, so let's keep 15, 20 for the rest of the year, in terms of basis points equivalent.
You will see as well some potentially other RWA impact stemming from CRR 2, but things that are manageable. You have ratings migration, and this is the area where potentially, we could have less than what we had expected. I think we had told you, EUR 7 billion-EUR 8 billion for the year in Q4. In fact, when you look at Q1, it is less than the pro rata of that. This is potentially where we could have less. Allow us to keep some caution. We'll continue to be always cautious in any representation we make at 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.
Slawomir?
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, with high but stable volatility, trends in the market, people looking for protection, looking for exposure at the same time. It was quite unique, if you look at the last few years. You may have noticed that in Q2, volatility, for example, realized volatility crashed, and is in the 6%, 7% area. This is something which obviously drives also the performance in this business. Again, coming back to your comment on the repositioning of the structured products portfolio, it was a redesign.
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. That, we believe, came at a certain cost in terms of top line, which it has, but to a much lower extent than what we were expecting. 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. 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. Again, the market conditions were particularly strong in Q1.
Thank you. Next question. Sorry?
Yeah. 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 core structured products franchise was the driver?
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. The contribution of all of the business was pretty balanced.
Thank you.
We will be able to enter probably into more detail on Monday.
Thank you. Next question.
Thank you. Next question for Pierre Chédeville 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? How do you see the evolution in Switzerland, in the U.K.? 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 Lyxor? My second question is, have you begun to initiate customers' actions to transfer balance sheet deposits toward asset management savings? 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, off-balance sheet products and with more fees, I guess, also. Thank you.
Yeah. Sébastien will answer your two questions.
Yes, good morning, Pierre. 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 to us. It's 40% of the total AUM for private banking AUM. As you just said, dynamics are good in terms of AUM net new money. The restructuring of the franchise goes well according to our plan, and especially in the U.K., which is positive. As you may know also, we have decided to outsource to Azqore, which is a subsidiary of Indosuez Wealth Management, our back office and IT services for Switzerland, Luxembourg, and Monaco and U.K. Basically, all the franchises outside of France, the IT for all the franchises, back office, and IT services will be outsourced.
It will help reducing the cost base of the franchise, which is one of our key objectives. In terms of revenues, I will not elaborate as William has 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 sight deposits into more value-added products such as life insurance or term deposits. That's something which is very important, and it also explains why, despite the challenging environment, we have been able to boast the positive growth in terms of fees during this quarter. That's something key for us, and the first priority as far as the deposits are concerned, and we don't intend to charge fees on deposits for individual clients, as an example, on the French market.
Our priority is convince the clients to convert their sight deposits.
Thank you. Next question.
Thank you. Next question from Tarik El Mejjad from Bank of America. Sir, please go ahead.
Good morning, everyone. Two questions, please. One follow-up first on the French results. The guidance ±1% in revenues, if that includes the PEL/CEL and also the potential extra bonus from TLTRO to be booked in the second half. The same question on CIB. Indeed, I would be very interested on Monday to understand the dynamics of how you managed to reduce the risk on downside and not at all on the upside. Also, maybe we can start touch base now on how come you've managed to so quickly fix the equities, because when it was announced to us last year, it sounded to be quite a big project that will go over a few quarters, not two quarters.
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 clean sheet? This last question on GCIB, on global markets. Looks like it 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, Tarik. First, Sébastien, on your two questions regarding the equity market, we took three quarters actually to do it. It was done swiftly and effectively on the first in the compensation. Perhaps Sébastien first.
Yes, Tarik. When I talked about between ±1% , it's excluding PEL/CEL, and it does take into account the over-bonification. For 2021, again, in H2.
Again, in a conservative way, I understand that, and because we are spreading over three years, so probably you need to understand exactly what our peers are doing, whether they do it immediately, whether they do that just for over one year. Again, on our side, we are in the most conservative approach, spreading for also 2022 and the remaining of 2023.
On the equity side, there were two questions. How were we able to do this in three quarters, as Frédéric 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 our leadership, our franchise there, and the choices that we made were simply the right ones. Where we were helped to a tune which was higher than what we were expecting initially is the market conditions, right? 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.
The speed of execution was helped by the market conditions, but the quality of the outcome is linked to one, a well-designed plan, and two, 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. To the sub-question of are we in a stop-and-go mode, absolutely not. This was executed very rigorously, and we're done with restructuring, and we expect our business to continue to function normally. Again, Q1 has embedded some extra performance links to the quality of the market conditions to the higher ease in hedging conditions, which helped the overall picture for the quarter.
Again, we have experienced a much smaller revenue impact because of the restructuring. In terms of the variable comps, no, it's not to come. It's taken into account in our current costs in a normal way. Of course, there was a significantly higher provision for variable comps in our Q1 cost figure for GBIS. Had this not have happened, we would've had a decrease in our cost base to the same tune.
Thank you. Next question.
Thank you. Next question from Jean-François Neuez from Goldman Sachs. 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. As for many banks, there continue to be pressure on the margin component. 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. 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 component that is currently putting pressure on the margin. The second thing I wanted to ask is just more broader on capital. Recently, obviously last year, there has been the quick fixes, et cetera.
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 elements, and there was these discussions on parallel stack , 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 view that you're willing to share with us on this particular item, given your current Basel IV guidance? Thank you very much.
Hello, Jean-François. I will let Sébastien answer, knowing there are very different elements and the flow of deposits, how precisely we're able to also to have people investing elsewhere on the consumer, the level of rates, et cetera. Sébastien, if you can try to give some color, and I will take the floor on your Basel question.
Yes, Jean-François. 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 two different components. The first one, which is out of our hands, is the low and negative interest rate environment. It's fair to say that it will continue to weigh on the NIM, on the net interest margin, for the coming months, at least. On the opposite, there is all the different parameters we can have an action on, and obviously, credit activity.
Then, also what I said about convincing our clients to convert their sight deposit into a more value-added product. That's an area where we put clearly a strong pressure on our commercial teams because it has a mitigant effect and impact on the net interest margin. When we combine all of this, pressure will still exist on the NIM, but again, don't take the Q1 as the view for the full year. That doesn't reflect our view on the full year.
Regarding your second question, Jean-François, 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 playing field.
The fact that it's clear that in the 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. We carry on explaining all this. In terms of timing, I think it is likely now that it will not happen in 2023, and just for the time of the process at the political level, as the Commission has postponed by September its own proposal. It's difficult to consider that it will be 2023. It is a 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 under William's control in their study.
ECB specific.
The ECB, so let's say probably the SSM. The parallel stack, it's more for the output floor, as far as I know, and we will see. It's not included in that calculation. It's something more for 2027 to 2028. 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. I think with the 115 basis points, again, is our best assumption, based on an updated balance sheet. That's what we can say at this stage. Next question?
Next question from Stefan Stalmann from Autonomous Research. Sir, please go ahead.
Hi. 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 it appropriately. You can probably take some haircuts for the equity's performance and maybe cost of risk, but you're probably still at around nine. 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. 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? 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. As you have highlighted, first it illustrates the capacity to meet a pretty acceptable one. Clearly, if the equity business has done tremendously well, and as we've said, probably benefiting from exceptional conditions, on the other hand, other businesses have still to improve and recover. Of course, on top of that, Boursorama, which is still accelerating its development. We have in mind that it will generate a strong profit in 2025. There are many levers which we have still in our hands, provided we're executing well, in mind also the combination of the two networks.
Again, we will communicate in due course, probably beginning of next year, first half, because I want to wait to have Basel IV. You know, we want to wait to have more clarity on the economy, on the Basel IV program proposal by the commission. We'll have all the element ingredients to communicate that more in detail. Of course, it gives you an indication of the kind of return we can achieve, there might be pluses and minuses, but at least it gives you some indication. Second, can I say we are not flagging significant write-backs? I don't know what you consider significant write-backs. We have seen very few defaults.
It's tough to say what we have more or less in mind, potentially with the exit of the crisis, there's a slight increase of the defaults, but a moderate one, and in particular, looking at the large corporates, it's remarkable to see the absence of any significant cost of risk. Probably, potentially some minor mechanical withdrawal write backs, but not something massive. The idea would be probably to keep the bulk beyond 2021. We are going to work on that in the coming months to see exactly how things are developing. As Diony said, we were very conservative by not writing back more than EUR 100 million of Stage 1 this quarter. We wanted to keep that going forward, and we'll see how things are developing. There is a message of confidence which goes beyond the improvement of the economy.
Again, what we see concretely with our portfolio.
Next question.
Next question from Anke Reingen from RBC Capital Markets. Madam, please go ahead.
Thank you very much for my questions. Actually, just more like two follow-up questions. Firstly, on the equities performance. Sorry to come back. I didn't want to ask on Monday. Is there any meaningful contribution from hedging or reserve releases? You gave us a hint last year. I just want to make sure there's not a material benefit this quarter. I heard you mention it earlier. Just making sure it's more underlying performance rather than reserve releases. Secondly, on your capital ratio. You're well above your target. I hear your comments about uncertainty. 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.
Anke , on the equity of the reserve, there's nothing that significant. It's purely underlying performance.
Yeah. Nothing significant there. Listen, the 50% payout ratio, 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 a kind of, 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. Let's wait to see more on the regulatory side and the environment. We have also in mind to fuel the business growth, if there is an opportunity for clever M&A, why not too? I don't think we are going to change that immediately, and we think we are really in line with our peer on that front. It should give you a lot of comfort for the coming years on all these items. That's what I can answer, Anke.
Thank you very much. Thank you.
Next question.
Thank you. Next question from Matthew Clark from Mediobanca. Sir, please go ahead.
Good morning. Two questions from me. First one is on the French retail revenue commentary. I'm struggling a bit to reconcile the guidance of this ±1% corridor for the full year with the guidance that the first quarter doesn't represent the run rate for the year, because if I annualize first quarter revenues, already you're at the top end of that +1% compared to the full year of 2020. I'm just curious how to reconcile those or why you're not more optimistic than that ±1% full year guidance, given how impacted last year was by the crisis. Second question is on international retail banking revenues. They were down quite a bit first quarter versus fourth 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 first quarter 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 Sébastien and then Philippe on the international retail.
Yes, Matthew, ±1% takes into account all the different parameters, including, as I said, a continuous pressure on net interest margin and especially on the deposit margin because of the low interest rates and increased deposits. 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.
How then, why then would subsequent quarters not be worse than the first quarter? You seem to be saying that the first quarter doesn't represent the potential for French retail. You talk about a rebound of activity increases when lockdown ends, et cetera. I guess my question is, are things getting better or getting worse versus the first quarter?
Listen, I think we are still considering at this stage, different scenarios on different parameters. We are a bit prudent. We want to wait to see how things are developing on the economy. There's probably a touch of conservatism, but we are realistic on the, for example, deposit stay or even further increase might still weigh on the interest margin. We remain a little bit cautious, if you wish. We are again thinking, refining our guidance, but it's still work in progress. Let's wait the second quarter, see how the economy is responding. We remain a little bit prudent.
Understood. Thank you.
We prefer to be on that side.
Matthew, if I may, I think you have to take, and I know you do that, the big picture. What we've said in Q4 is that we are confident that the revenues at group level will rebound relative to 2020, consistent with the positive jaws. What we've said as well, is that we expect that to happen across all businesses with one question, which is, as you heard, which may be in the more mature retail, and French retail, it could be ±1%. Overall, it doesn't jeopardize at all the overall picture that we've talked about, which is strong rebound in revenues, potentially.
Philippe, on the international retail?
Yes, thanks for the question. Regarding Russia, regarding the revenues first, you have to take into account that they have been impacted by a new accounting scheme 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 overall base effect when you look at the performance of Russia. It's that the first quarter of 2020 was impacted by very important clients withdrawn by corporate, as precautionary liquidity buffer. All this put aside, it's, again, a difficult context. The performance of SG Russia was quite good. A strong increase in mortgage, also 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. In the first quarter for Rosbank, 48% of the core products were sold in full digital mode. Really, they are on track regarding this transformation. Regarding Africa, strong momentum in sub-African countries, so slightly less regarding Mediterranean basin. When you look at all the metrics, they are also on track. 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 momentum of the activities, and I think we will catch it.
Thank you. Next question.
Great. Thanks.
Thank you. We have no more question.
Okay. Well, thank you very much 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.