Ladies and gentlemen, welcome to the Societe Generale conference call. Frederic Houdet, Chief Executive Officer and William Cadouch Cha Sang, Deputy General Manager, Head of Finance, will present the group 2020 results. Jean Clement, please go ahead. Yes.
Good afternoon to everyone. Thanks for attending this call. I hope you are all well.
Let me just welcome Savoie Pierre Crouppin.
As you know, Savoie Pierre has taken over Stephane Karbain As Head of TPIS activities and with all the management team, he will help me to answer your questions. After a short presentation, which I will deliver with William Gatouche, our CFO. So let's immediately turn to the presentation and page slide 4. Just a few key highlights for the Q4 results. First of all, this quarter confirms the rebound that we observed in the 3rd quarter Despite the still uncertain and sometimes challenging environment, with revenues which held well, up 1.6 percent compared with the Q1 and down by moderate minus 2.3% compared with last year.
Retail activities remained resilient. Market activities confirmed their progressive normalization And Financial Services and Financing and Advisory were very strong. 2nd, we have Complied with our major guidances, we had a target on costs. We are landing exactly there With €16,500,000,000 of underlying costs, minus 5% compared with BRLTIA. We will comment a lot on the cost of risk and the quality of the portfolio.
You have seen that we were very conservative in the provisioning of the 4th quarter. And Despite this, the cost of risk landed at 54 basis points for the quarter, 64 basis points for the full year At a lower level than expected and with €1,400,000,000 for
Performing loans, which is a
big factor. And third, regarding the capital, CapEx for Q1 is strong at 13.4%, Well, above our guidance, we'll come back to that. When I see 2020, let Let me just highlight that beyond the results, I think we have really put forward some key strategic initiatives, which will pave the way for the future. Obviously, we announced the combination of our French retail networks. It's a big important development of Bouster Hammar, our leading online bank in France.
We also presented a very promising trajectory for ALD, ALD which is also releasing very strong results today and KB, our Czech subsidiary. And again, regarding global markets, we will come back to that I'm sure during the presentation and our discussion. We are really well on track on the redesign of our Product Investment Solutions, Structured Product Portfolio and this is something positive. Well, of course, very important to ensure the return. As you know, we are again allowed like European Thanks to resume payment of dividends.
So we are proposing to the general meeting of shareholders Cash dividend of €0.55 per share is in line with the maximum according to the ECB recommendation. But we aim to complement distribution with a share buyback program, which would took place In the Q4 of 2021, Providen, of course, the ECB repealed its recommendation in September. Before entering into the figures, just two words on 2 structural trends that this crisis is accelerating and which Our leadership is recognized in our best in cloud 2020 extra financial ratings, as you can see on the slide, certainly in energy transition, we earned number 2 worldwide in renewable energy financing for 2020 and number 1 in advisory. This is really a significant achievement. We have, as you know, Leading exports is there.
And just to put this market in perspective, it's a US2 $1,000,000,000,000 market, it's growing at 15 percent a year. And when we just look at the flow of the investments in 2019, it was €280,000,000,000 So it's something which is big and which will be bigger and bigger every year. We have started to align our credit portfolio and in Which is a parallel shift with the development obviously on our portfolio in renewable. But beyond that, as you know, ESG is very diverse domain and actually that makes also the complexity of that. So That's diverse.
Let me just highlight that we are very well recognized as domestic bank. We ranked number 2 worldwide according to according to video, Erith, and the behavior that we have with our clients. And in terms of diversity and inclusion, we have also here ambitions. We have More to do here. Let's remain humble like many companies, but we aim to have a 30% percentage Of women in our top 200 management position as well as our top executive committee And we are going to make progress there.
We were retaining the Bloomberg Gender Equality Index for a 2nd year in a row, alongside just 380 companies worldwide across 11 sectors. The second dimension, which is of course Key when we should think about the transformation of our business partners and the way to operate is of course digital Transformation, the growing usage of digital technology, we have now a very Comprehensive benchmark that we use to monitor our progress, you can see here some Just regarding our different activities. And let me highlight, of course, for example, Francois Laurin very well, as well as our Russian jittery where we saw actually a strong increase of our digital sales this year. We have, I think, built a pretty robust foundation in terms of IT. We have more to do there like all banks.
But as you can see on this slide, we have, for example, 80% of our infrastructure on the cloud. It's a hybrid cloud. So Predominantly still private, but we developed progressively also access public cloud as well as the usage of artificial intelligence with case usage, we've already some significant benefit in terms of efficiency and revenues. And last but not least, I think Societe Generale is certainly a bank able to think about new business model. Boursorama is a good example of that.
But this in 2020, we were able to further invest. For example, in the acquisition of CHIN, it It's again traditional client, but it's a different way of thinking the providing banking services and beyond, But also with Rizocar, which is a used online used car sales platform for individuals. It's also true with the acquisitions of Tresor, which is providing actually core banking system 2 neobanks, 2 competitors, if I may say, but we are happy to do that. And as well as more Disruptive business model with an internal startup that we have developed, which is called Forge, which works on everything, which is related Digital asset, crypto asset, as you know, an area with which is developing, for example, in U. S, but also with in close contact with regulators in Europe.
And so here also we see good opportunities in the mid term, of course. Now I will turn the floor to William, who will I meant more precisely the figures.
Thank you, Frederic. Hello, everyone. I hope you are in good health. I thank you for the interest you take in our company. Now I turn to Page 8 with the key highlights of Q4.
There are 3 key elements for us. Number 1, we have positive jaws This quarter when you adjust revenues and costs for perimeter and foreign exchange impact, you end up with revenues down 2.3% Costs are down 3% on positive jaws. And as Frederic said, this is on the basis of resilient retail, The strong growth in the financial advisory and financial services and normalization in global markets combined with constant cost difference. 2nd point, contained cost of risk. Cost of risk stands at 54 basis points annualized for the year.
It is important to note as Federico did that it is mostly Related to Stage 1 and Stage 2 provisions, which amounts to 9 basis points within the 54 basis points affecting the quality of the portfolio. And third, Resilient profitability comes from the fact that we have another quarter of the Q3 of decent profitability, €631,000,000 underlying and €470,000,000 published. Let me €1,000,000 published. Let me be more specific on what it contains. So we have in the published net income The restructuring in of restructuring charges for about €210,000,000 which pertains to the cost plan we have launched in market activities and some support functions.
And we have also the impact of the sale of SG and A Finance, which has been closed during the quarter under IFRS V for 101. This is a lumpia non cash item as it relates to currency translation. Cost, we would like to highlight what on the Page 9, which is the fact that this is the 2nd year in a row where we have been able to decrease cost in absolute terms. So we meet the target is predicted at €16,500,000,000 underlying cost. To get to the reported, you add The €200,000,000 I just referred to pertaining to cost to achieve our restructuring challenge.
What is important to note is that We have to see some additional costs during the year, single resolution funds contribution increase, COVID related costs, as we had said, for €500,000,000 Obviously, some cost reduction stemming from M and A and roughly compensate. And then you have €800,000,000 cost saving. I would like to stress the fact that we consider That's within this €800,000,000 cost saves that we have achieved in 2020, we consider that 60% are structural. The structural component is largely explained by cost cutting initiatives that we had launched in 2019 in CIB, In headquarters of international retail, in headquarters of French retail and other efficiency initiatives, Plus some initiatives that we have taken in 2020 in the context that you know, which we consider We'll bear fruit over time. And then there is a more variable plant in nature within €800,000,000 as it is logical.
Looking ahead, I want to stress as well that We reiterate our strong commitment to further decrease the underlying cost base by 2023 relative to 2020. So 2020 cost base down relative to 2020. In other words, this is based on the execution of plans we have been launched already, the €450,000,000 decrease in the cost base of global markets from 2022, 2023, as we said, the portion will be Executed as early as 2021, euros 550,000,000 decrease in cost base of French Retail Banking from in 25,000,000 relative to 2019, we have already mentioned that with Sebastien Pro 2 a few weeks ago. And further reductions that we had added to, including further industry evolution of process and support function. For 2021 precisely, we still the company with positive jaws.
So this is a clear objective for us. We see a better outlook in revenues in 2021. And we will maintain a very strict discipline on cost. We expect only a slight increase accompanying business recovery. On the cost of risk, much has been said already with the 64 basis points to be compared to 70 basis points guidance we have given.
We see 2021 as a year with the cost of risk is expected To decline relative to this 2020, Laurent, one point I would like to highlight Pertains to nonperforming loans ratio, as you can see, it remains fairly low and with combined with A decent coverage ratio. In absolute terms, the inventory decreases because we are able To sell part of these entries inventories or to do some write offs, so we continue the active management. We give you more detail and strategic answers on the cost of risk because we know that there are obviously a legitimate question on that. If you turn to Page 11, You will see the split between Stage 1, Stage 2 both for the quarter and for the year as well as between the Pinault. And as Frederic said, for the whole year, Stage 1, Stage 2 explains 41% of the provisioning.
And for the Q4, it explains 53%. So it's a very important number to keep in mind for the future. Turning to debates that is active in the marketplace and we have questions from you In the previous calls, which is the exposure that is left on the balance sheet pertaining to COVID related measures with moratoria in countries where we have accepted them or state currency loan particularly in France. The point there are 2 points we would like to make. Number 1, We do not observe the significant deterioration of the creditworthiness counterparties at the exit of moratorium.
You see here the 2.2% of total growth rate in Stage 3 for as far as we are concerned, the actual defaults Actually lower. And that is for all areas where we have moratorium. We have a second point, A manageable residual exposure. Take we have more than 85% of our more unreal which have expired. And if you look at state guaranteed loans, you can see that the residual exposure we have is about EUR 2,000,000,000 90% in average of the amount is guaranteed.
And we have Assuming what Banc de France has been hinting that maximum we could see 5% to percent potential default, that's obviously a very manageable exposure knowing that we have already provisioned a large portion. Turning now to capital. As Frederic highlighted, Core Tier 1 ratio is It stands at the end of the year at 13.4%, which is obviously well above our guidance for the year. This is equivalent to a buffer of 4.40 basis points, which seems to be compared with our midterm target Of more than 20 basis points above MTA. What does explain the growth between Q3 and Q4, which is of about 30 basis points, is number 1 organic capital generation, 27 basis points.
Number 2, securitization. We continue to do synthetic response. We did almost EUR 4,000,000,000 of it during the 14 basis points. M and A, 10 basis points stemming from the sale of AG Finance. On the regulatory, You have both headwinds and tailwinds over the quarter.
You have obviously 36 bids out of TRIM. For the whole year, is 41, so 36 for the quarter. And you have, as expected, the tailwind From the change in the potential accounting for software for 16 basis points. When you look at the rest of the balance sheet of committing each and every metric, they are Strong. Capital leverage ratio is 4.7.
And on the liquidity, we see we've completed 40 Liquidity reserves, you have these things that I'm showing that supplement stands at €243,000,000,000 We give you The amount of outstanding of TLTRO, we know it is an area of where we have questions. On the going forward, The target we have in line with this target clearly for us Is to run the company with a buffer above NDA at any point in time, I. E. Including after Basel IV of more than 200 basis Through organic RWA, we want to come back to a cash distribution based on the 50% payout and we account for The remaining impact of TRIM as well as Basel IV. On TRIM, we think that we could have another close to 30 basis points impact in 2021.
For Patent Form, we update the figures With the last information that we have, as you know, that there was an EPA Call for advice based on the EU Commission request in December. So we have adjusted our numbers on that basis plus the forecast balance sheet and we now come up with an impact of EUR 39 €1,000,000,000 additional RWE in 2023 or roughly 116 basis points. That includes FRTB. So this is to be compared to the previous number we have given to you, EUR 36,000,000,000 excluding FRTB. Now we see EUR 39,000,000,000 including For 20 21, we think we will land well above this target.
A few things I've already mentioned such as Stream will impact the core Tier 1 in 2021. The dividend, we will go back to the 50% Provisioning, I mentioned. But I want to mention as well that should we be authorized To do the share buyback program that Frederic mentioned in Q4 2021, there would be net share consumption of 13 basis So another way to look at it is to say that our pro form a core Tier 1 at the end of the year is 13.3. I won't comment the next page as usual and turning to the businesses and not obviously commenting in February matric. French Retail.
As you can see, we continue to have progress in all franchises. So that when I look at outstanding, of course, At pace, this is lower than what we had pre crisis. One area which used to be noted particularly is a strong growth of outstanding for corporate And professionals, 25% that includes the state guaranteed loan outside of it, it's 2.3%. But we continue to make progress In insurance, you need to contract that up. And as you can see, property and personal protection premium are up well as the P and C.
We have private banking net inflows in Porcelorma as North America. What is to be noted In the outstanding is a deposit growth, 15%, which explains why we continue to see mild pressure on the NIM. And if I turn to the next page, obviously, you can see that this is a business that is resilient, but still sees some Downward pressure, particularly on the NIM side, NIM is down 4% year on year in the 4th quarter, it's up sequentially. Continue to have negative impact from deposits and interest margin compensated by volumes on the credit side with margins which hold reasonably well commissions, the same trend as we had seen in Q3, which is that it's down Year on year, but strongly up in financial fees and down in services. Still great discipline On cost and all that leads to a 6% return for the year.
It's 3.5% for the quarter, 5% when you exclude both of them. If I turn to International Retail Banking, there again, we continue to see fortunately growth in loan outstanding, more even so on deposits as we see it In Western Europe, obviously, the pace of growth in the loans is lower than we had than what we had pre crisis, except for some areas where we see a clear peak in activities. You see that in Russia, for example, we are up 18% in more cases. Over the past all these results, we have cost discipline. When I look at international retail, particularly, let's remember that the return for the quarter stands at 10%, 9% for the year, combined with the contribution of €150,000,000 for the quarter €531,000,000 for the year.
Financial Services, which is the next page, had obviously a very good quarter. Financial Services altogether Post revenues growth of 8% for the year on year in the Q4 combined with the return of 20%. So you have a gross operating income up 12% in the area and the contribution to the group net income Respectively, euros 226,000,000 for the quarter and close to €800,000,000 for the full year. You see this is across the board, particularly strong for ELD with revenues up to 14%, but insurance is up 1% as well As is getting up. And in total, when you look at IPFS, it continues to be an area where we see Above average profitability at 14%.
We have positive jaws in the quarter. And obviously, we see as we see in other areas, a much better pattern towards the end of the year than what we had in Q2 as you remember. Global Markets and Investor Services, turning to GBIS, the initial plan. You have here a few message. First of all, we see the rebound in market activities we had observed in Q3 with revenues just above €1,000,000,000 for the quarter, which is that overall We choose to say that overall, the average quarterly revenues in market are back to EUR 1,100,000,000 in the second half, 44% More than the first half.
And this is more in line, as you know, with the historical average. Equity in Q4 related to Q3 and down 7% year on year, which is important to note is that the equities are back So the EUR 600,000,000 type of revenues that they have usually in a context where there is The implementation, we have done the implementation of the de risking. We had talked about, I'm sure you will have questions from my colleagues. To be noted, Asia was particularly strong in equities this quarter. Fixed is down year on year at 16%.
But if you look at it on the year on a full year basis, is up 21% and adjusted for the runoff activities. We will certainly comment that with your questions, but I want to I like the fact that we think fundamentally linked to a mixed effect. We are, as you know, very strong in the flow rate As well as in Europe and that was important just to put a huge case in point, particularly strong for credit and the U. S. In these two areas, credit flow and the U.
S, we post very strong growth as well, but fundamentally, Yes, let's present the total portfolio. Talking about financing and advisory. This is obviously a very strong quarter, 9% growth year on year combined with a return which is Factolia, a little more than 18%. The growth is across the board. Financing activities are very dynamic, plus 5%.
Investment Banking, including TCM, ECM, Acquisition Finance Advisory, as you know, is up 13% And Transaction Banking is up 4%. So across the board, very good performance and we will continue to fuel that business. Asset and Wealth Management is more nuanced with a good performance on XL, plus 13% in revenues, decreasing private banking revenues. But there, one has to make a difference between commercial revenues, which are stable, and we have net new money in private banking And the pressure on interest margin, which is what you can see in every retail activities operating in metro countries. So in total, you see Global Banking and Investor Solutions results back to a more decent Underlying growth return for the quarter 9%, still low for the year given the first half.
As you know, I would like to highlight The very strong decrease in costs, costs are down roughly 10% in year on year in This area and the group net income is up year on year at 46% on adjusted for perimeter and for an exchange. Corporate Center, nothing much to mention except for the fact that it does account for a diversified impact on HD Finance, it does impact On it does account for some restructuring charges. When you look at the operating expenses in the quarter, Q4 2019 relative to Q4 2020, optically, you see an increase in 2020. In fact, there was, In terms of some base effect, they are stable year on year. I turn now to Frederic Concho.
Thank you very much, William. Slide 27, just perhaps a few words on 2020, taking a step back. I think we did a good job with our clients. We were alongside them and it's a kind of goodwill that I think we've built. It's true.
Beyond the Societe Generale, I must say for the banking sector in France, when I look at the image of the sector and it's positive, I think we did also a good protecting their health and leveraging on a very strong mobilization, which ensured a smooth functionment of the bank in extreme circumstances. And clearly, of course, we had a difficult year in terms of financial performances, which impacted confidence of the market. But I really believe and I think it's reflected in the Q4 and the second half that The current share price does not reflect the valuation of the bank, the intrinsic franchises. We have really 2 halves in this year. We have had the first half.
We've, of course, the specificity of the impact of the markets on one portion of our the market activities. It should not hide that the rest of the business did pretty well facing of course extraordinary consensus. And the second half shows definitely the capacity that we have. First of all, to Adapt the portfolio of products and again to take advantage of a normalization of the environment. And I think we've really laid pretty ambitious and value creating foundation For the future for some of our core businesses, I've already mentioned the combination of our French Retail, ERG, KD and Boursorama as well as transversal initiatives regarding ELG and digital transformation.
And when I look at 2021 Remaining realistic, of course, with still uncertainty on the environment, but with probably a central scenario, which should be that the vaccines should have progressively to come back to something more normal in terms of the function of the economies. Our focus is really to Deliver to execute and of course to take advantage of that to rebuild confidence with the market. We will effectively focus on the trajectory that we have presented on our businesses. We will carry on combining our clients, a lot has to be done to help them to find the right approach when precisely I think are In propane, we will maintain a very strong discipline, very strong discipline on the cost, very strong discipline on risk taking. And Really, I'm very encouraged when I look at the quality of the portfolio like William has commented and of course on the capital usage.
And we will, of course, then finalize the trajectory, the strategic trajectory for, in We will present in May 10 with Stavomir. Where we want to go on the back of course of also the first quarter results and we will have then achieved this Repositioning of our portfolio. We will also, of course, present more beyond In the second half, our ESG strategy. And in terms of distribution policy, which is Well, we want to come back again to 50% payout ratio. It will include component of share buyback.
And as you can see, we are sizing the opportunity already in 2021 to implement this policy. The €0.55 euros per €1,000,000 is actually in line fundamentally with this policy, but also adding a share buyback at year end. That's what we wanted to say. So we enter into 2021, I would say, with confidence that it will be a year of rebound Now let's turn to your question. Let's stick to the usual discipline, please, of 2 questions per person.
So please go ahead. Floor is yours.
Thank you. The first question comes from Delsin Lee from Then, Philippe, You could ask your question.
Dustin, you might be on mute or I don't know but
Yes, sorry. I was indeed on mute. I'm sorry about that. It
happened. Sorry. Yes. No, don't worry. That's fine.
Hello,
Thanks for your patience. So two questions. First one is going back on capital. You're basically at 12% Basel IV. So the question is why not increase the payout ratio for 2021, for example?
You are already paying over 50% for 2020. So just wondering And you're thinking for 2021, which is at this point unchanged. And related to that, What's the rationale for not increasing the share buyback component, both for 21 and actually 2020, given where the share price is? And then my second question is on the revenue guidance, Which seems to suggest decent, let's say, growth for 2021. If you could provide some color on Does that assume further pressure in French Retail?
And what is your assumption for CIB? Thank you very much.
Yes. Well, just in fact, I can take these two questions. And of course, we can go more in detail With additional questions, but first let's start with revenue. Clearly, we expect a rebound On revenues, it will vary according to the businesses. It's, of course, particularly true on Capital Markets.
And again, during the questions, we might enter more in detail. Of course, we had this impact in the first half of twenty twenty. The kind of strategy we are pursuing means that we should not have that. And we have positive start of the year, as we said. Of course, We want to be prudent and wait a few more months, but I think we are moving in the right direction there.
Beyond, I think we are positive for our financial Services and financing activities. And then on the retail side, it can still vary, of course, depending on lockdowns, things like this. But we might see the same kind of trend and same thing we will enter probably in the detail when we will comment on the specific businesses, but with sometimes, of course, erosion of margins related to the rates and at the same time, probably an improvement of fee. So Yes. Overall, if you wish, the perspective for revenue is, of course, more positive compared with 2020.
In terms of capital, listen, we want, of course, to remain flexible and 2021 will be still a year of stranger. We are kept in what we can immediately distribute till end of September and might have the opportunity to complement In the last part of the year, we've considered that the kind of program we are proposing equivalent to the dividend Is there a way to definitely distribute something attractive, while at the same time protecting, creating a strong for Tier 1 At the moment, of still uncertainty, so trying to give maximum comfort to investors on that front. And then we will see where we stand end of the year Beginning of 2022, we'll have much more clarity on many topics, economic environment, the real impact of this crisis, Whether or not Basel will be implemented in 2023, which is probably a conservative Agenda and schedule, when you think just about the political process, which will have to take place. So I think we will have more visibility there to adjust if needed. So we want to remain flexible, but we consider that we are doing we will do as much as we can, of course, given the constraints in 2021.
Next question?
The next question comes from Tariq El Mejjad from Bank of America. Sir, please go ahead.
Hi, good afternoon. Just a couple of questions, please. First of all, on cost, I mean, you're guided for slightly higher costs in 2021 versus 2020. Could you take us through, especially the moving parts, I. E.
The French retail, the shopping charters and then the savings in CIB and so on. And what basis you use? Is it like 0.5% or 16.7% for this guidance? The second question is on the revenues In CIB, so how much of the revenue erosion driven by the derivatives Derisking, there is business derisking is included in Q4 and how much should we expect in the next quarters? Thank you.
Yes. Hello, Thierry. I will turn to Riela on your first question on cost perspective and then to Slava On your question regarding revenues for GBIS and Capital Markets more particularly. William? Hello, Tariq.
Actually, 3 components of your question, if I may say so. The first is what is
the base that we look at for our guidance? And this is the underlying cost base It's a 16.5 percent, not the 16.7 percent. The second part is, can we qualify The guidance of a slight increase. I think in the sense, if you consider that We had between 2019 2020, the 60% of structural cost save. You have at least an indication of what is fundamentally a real decrease between the 2019 2020, we think there could be some inflation of expenses Very related to a potential business growth.
So a bit of discretionary expenses, a bit of variable remuneration Plus, of course, some increase in taxes with the SRS contribution, which is meant to increase. So these are The components, I don't think makes sense to go in each and every businesses. I mean, that's the type of things that we can see. The 3rd component of your question was what about CTA. We have 200 here.
We have announced that we would have Additional restructuring charges potentially in 2021. I think it has been said already by my colleagues Talking about French Retail and you know that we have a number of initiatives to decrease the cost base over time. What I want to say is that we are of the views that this city over time is manageable because of the capital position, because of things we can do to offset at least some of it and because From a shareholder standpoint, again, the dividend provision, back to 50% of the 2021 results and forward It's based on underlying.
Thank you. Slavomir?
Hello. So on the revenues, specifically on the global markets side and on equities, it's a function of obviously the Derisking and redesign that we are implementing and which is well underway, but also obviously of the market conditions and in particular, The dynamic between supply and demand for these particular products, which has been Favorable to the supply side. Basically, the margins have increased and are helping the overall equation. So the answer would be, we are close to the maximum impact, not completely there, Assuming a stable situation in terms of margins on this particular segment.
Thank you. Next question. Thank you.
The next question comes from Stefan Michael Stallman from Autonomous Research. Sir, please go ahead.
Good afternoon, gentlemen. Thanks for taking my questions. The first one Relates to TRIM and your synthetic risk transfers, would it be possible that you guide for how these two items split roughly by division. And also is there a connection between the 2? Have you done these synthetic risk transfers To cushion the impact of TRIM?
Or would you think there's a potential for more synthetic risk transfers going forward? And then the second question going back to Capital Markets revenue, in particular markets. Fixed income looked a bit dynamic this quarter. Was there any particular factor driving this, please?
Stefan, hello. William will answer your first question and again, Your second one, William? Hello, Stefan. With regard to Dream,
I think we had said 2 years ago, I think that TRIM related to all businesses, but there was Bulk to be expected more in the CIB activities. So this is true as well for the quarter and for the year. Now with regards to your second part of your question, which is do we manage synthetic secretory section In a link with Stream, I'd say that yes and no. Of course, we are sensitive to the RWA management of all the divisions, which For which we want to tame the RWA growth outside of the organic growth that we have planned. And OTD, Of course, as well as the synthetic securitization are useful tools.
But in fact, when you look at the quarter, we do it Across all areas, in this quarter, you have something in F and A. You have a significant portion in Frankly tell. And you also have the portfolio in consumer lending in Western Europe, so within IBFS. So It is fairly spread. What we're very focused on as far as synthetic securitization are concerned is the return.
So we don't we do only things which have a positive return for us, I. E, we can do at a good price.
Thank you. Xavier, on the fixed income?
Sure. So I would say a soft quarter for FICC with no material idiosyncratic events. That would be so by definition, very specific to SocGen. What is specific to us is the mix And along the lines of what William said earlier, our product mix and our geographical footprint mix It's different from obviously the big American payers with some of our European peers. And so euro rates Are an overweight of ours and clearly this was the softer part Of the market.
And the second, not so much specificity, but a business we're well engaged in is All of the financing and clearly very thin margins on the back of ample liquidity in the system. And so These two things were a drag and they are a skew of our mix. From a geographical perspective, Without going into the exact details, but we had a very strong performance in the Americas, a decent one in Asia. And again, from in Europe, something much softer. Lastly, on the credit side, same thing, Good performance, but much smaller than compared to some of our peers.
So it's mostly driven by the mix. And marginally, I would add that, while to a much lesser extent, there was also some degree of redesigning going on throughout year in the structured side of that business. And so from that perspective, the contribution, while not negative was much smaller than in the past. But if you look at the entire year, I would argue that it's still especially taking into account the structured products, Heath and H1 in fixed income, it was a fairly decent performance at plus percent versus last year.
Great. Thank you very much. Next question?
The next Question comes from Pierre Cheuvreux from CIC. Sir, please go ahead.
Yes, good morning. Can you hear me?
Yes, yes, yes. Hello?
Good afternoon, sorry. 1 of your competitor recently said that Regarding the French Retail business, most of the profitability, more than 70% 80% came from SMEs and Private Banking Business, which in a word, as you said, if you are not a mutualist With more than 25% of market share, mass market business is not profitable anymore, and you have to Focus on SMEs and Private Banking. And you said in that context, in a low interest rate, if you have a small market You have to develop prior materially in priority, sorry, SMEs in linked with Private Banking, which means that you have to accelerate the closure of your branches. And he Chen, the number of 1,000 branches in France, for instance, for its case. So my question number 1 is, do you share this analysis?
And do you think that you will have also to go to these numbers branches. And my second question is related to ALD, which Made a very good performance this quarter, mainly due, if I understand correctly, to used Car. But in the longer term, if you replace cars By trotinet and on bike, I know trotinet is I was wondering at the end of the day, if you add more The impact of remote working, at the end of the day, my view is to say, is it not fundamentally a deflationary business? And what is your view on that? And isn't it time to sell it at the top of the peak?
I will let Sebastien elaborate on what we do in the French retail. Certainly, if they may complement on Bauxfort Aman, which As you know, we are the only bank with such a successful alternative model for individuals. And then Denis Lebow, is the Chairman of the Board of ARD comment on your question. And before we all move on Totinet, we might think about electrical parts, but She will comment. Good afternoon, Pierre.
Let me just remind you that As far French Retail activities are concerned, half of the revenues come from Corporates and professionals and 20% from affluent clients. So if I add the 2 components, that means for Societe Generale, We tell businesses from the French market, it's 70% coming from corporates, SMEs and Aptial clients, which Makes us a little bit different, I would say. That being said, Clearly, our objective is to reduce cost to serve for the mass market. That's what we are trying to do very We have to try to do, we are trying to do and that's something which Makes the merger between the BTTF and CreditNo even more relevant. On your last point Regarding the number of branches, again, I would say that we Closed a lot of branches over the last 5 years.
Let me remind you that our objective in 2015 was To close 20% of branches in Societe Generale Network and 30% of back offices, That's what we did. And we announced last December that we will our objective is to close Again, 600 branches between 2021 2025. And we explain why in our view, the number of branches should decrease in the coming years.
Thank you. Philippe, on Boursorama, a few words.
Yes, thank you. Yes, as you remember and as we explained in December, we do believe that there are 2 specific trends in the French market. The first one which was by Sebastien, these clients, not a big corporates, professional and massive client, Who still wants both the digital experience and the capacity to have access to the human expertise. And the answer for these clients is obviously O2 Networks and in the future, the new branch. Simultaneously, We have also an important number of people and clients.
We want only a full digital Experiments and we have also the answer with people, which is, as you know, Bouffsoramas. Bouffsoramas Posthorana had a very good 2020 year, still very robust regarding the And Tim, you can see, as I always said, we are monitoring very carefully all the key indicators, Acquisition costs, revenues per client, deposits, loans and all these indicators are definitely In the green zone. So we are very comfortable with this 2x year To address the French market. And Jeanie, on ALD?
Yes. Thank you for the question. Indeed, MBS has had a very strong performance this year, both in terms of operational capacity margins and Very good remarketing, both in volumes and prices, which was a bit of unexpected in the pandemic situation, but indeed a very strong secondary market. It is not at all our view that will move to trotilet or bicycles. And we believe that there is a long term structural trend shifting from Ownership to usership for cars and hence, really favoring the model of ALD, who is already a leader in terms of fleet financing and leasing and has a very Good positioning also in privates.
So we continue to have Growth, we have signed very interesting partnerships, both with manufacturers such as Tesla or Ford, but also working with corporates and banks. And as you know, we have announced our 2025 strategic plan, Move 2025, where we target A significant increase in terms of contracts, euros 2,300,000. And we also build on the 2nd very important trend, which is electrification of fleet, where we target 30 So we still see a significant growth in the market and are well positioned to be a mobility leader building on structural trends.
Thank you. Next question?
The next question comes from Omar Fall from Barclays. Sir, please go ahead.
Good afternoon. Sorry, could you can you hear me?
Yes, we can hear you now. Hello.
Hi, hello. So just firstly, just going back to costs, I wanted to clarify the Commitment that 2023 underlying expenses will be lower than 2020. Does that mean that costs We'll keep growing and then you get a sort of cliff effect in 2023 or you'd expect a gradual decline from 20 22 already, especially as some of the 450,000,000 in savings from GBIS come through. I just want to make sure my Reading comprehensions isn't too bad. And then the second question is just if you could update us on revenue and or And if you don't want to touch on revenue, but at least loan growth outlook for French Retail, excluding the State guaranteed loans were like in the low single digits.
So do you think that's sustainable? Because even with the recovery out of the pandemic, there's obviously a debate around corporates having to cut their gross debt in question around mortgage growth. So I'd love to get your insights on that. Thank you.
Yes, Omar. Okay. So I will let William comment on the cost and Sebastien on The volume and the activity on credit, that's one thing to add to understand the perspective on revenue on retail It's also the LTRO, how we compute that, I think, because it's important. So, William?
Hello, Very simply put, we want to run the company with positive jaws Through the period, we see a slight increase in 2021 consistent with a better outlook on revenues After a very strong decrease in 2020, we see a decrease in 2023 relative to 2020, but it's not a cliff effect. From 2022, we expect stabilization and downward trend to resume.
And that's just on the TLTRO on the volume of the credit. Just to explain that we
have not
computed the benefits of the TLTRO, which will help also On the revenue side.
Yes, maybe to explain. So effectively, a large part of the potential benefit from stemming from is associated with Frank Little to the point of Frederic. In 2020, we have a very limited Benefit stemming from TFTO, both from the actual the existing scheme and the potential A new bonification for which we have recognized nothing as of yet. We have a prudent approach, which is to recognize The benefit of such qualification when we are certain that we are able to meet The requirement as far as volumes are concerned. So we see a benefit of the existing scheme 2021, 2022, 2023 and the potential additional benefit stemming from the new scheme that has been announced in December That could be seen in our revenues starting towards The
end of
2021 and again 2021, 2022, 2023, as we recognize the benefit. As you know, over 3 years, we have made it clear in the appendices of
our Thank you. Based on the activity on the loan side, yes, good afternoon, Omar. So On the credit activities, you cut was more dynamic. On the retail side, we had good momentum In volumes, but also in margin in home loans. And on the corporate side, we We had high volumes in medium, long term credit production.
And your question was also about what is exactly the momentum if we exclude PGE. And so in terms of outstanding, the Growth for medium long term credit is plus 2.3, excluding The government backed loans, so plus 2 point 3. And if so that's positive on medium and long term. Credit positive on the retail side for home loans and less positive for consumer loans and short term credit facilities.
Thank you. I guess I was really interested in your thoughts going forward on the outlook For credit growth in France, if I may.
As we said and as Frederic said, Our software scenario for France, for the French market is progressive in Continuing with Huawei, obviously, depending on the sanitary context, but central scenario is more positive.
And Omar, if I may. First, when you look at the Q4 macroeconomic figures, 1st, the investment by corporates remain relatively good. And of course, again, If the people have the feeling the pandemic will be behind, thanks to the vaccine, I think you could think about an acceleration. Consumer, I think, is a little bit the same. People save a lot because they can't spend today.
And we've seen a rebound of Spending when there was the end of the lockdown, for example, on car acquisition. So I guess we can have also the same thing if things are improving. That's why we are, If you wish, a bit caution, it depends so much on the environment in the coming months, but we consider it to remain relatively robust. And of course, on the guaranteed loans, one of the key questions is whether people reimburse or not. It depends.
They might consider it's a question of insurance, if I may say, for a cheap price. Same thing, we will know a little bit more in the coming months what they want to do. So let's we will have a little more clarity on this In 4, 5 months.
That's very helpful. Thank you.
Next question?
The next question comes from Jean Francois Neuez from Goldman Sachs. Sir, please go ahead.
Good afternoon and thanks for the call. Wanted to ask about Global Markets. In terms of the revenues, so there was a comment that the mix It didn't lend itself to the kind of boom that we saw at bigger competitors in fixed income. And I just wanted to understand whether If we if as is in the market consensus now that boom deflates slightly in 2021, it is right that as a result of this, your expectation, you should outperform peers. And also in equities, I wanted to understand whether There was any mark to market effect that was blurring the comparability with last year or the previous quarters In the revenues of equities, in particular, when we observe the factors underlying the hedging performance, they have improved very in Q4.
So I just wanted to understand commercial run rate versus maybe the P and L impact. My second question was On the capital ratios, which has progressed very strongly in comparison to expectations, so congratulation on that. In the past, There was the TRIM guidance, but there was also an expectation that you'd have some procyclicality hitting you towards the end of 2020. Didn't look that it was singled out as a factor that your capital ratio at least nearly as much as was initially expected. This to happen with the delay or is it something that you believe new updated macro projection will no longer warrant the guidance?
Thank you.
Yes. Jean Francois, hello. I will pass the floor to Slavomir for your first question. And then to Johnny on the Downgrade, I think, the rating of the counterpart.
So on the fixed income hello Jean Francois. On the fixed income, I would say, well, We would outperform peers if the market conditions would be most conducive where we are overweight versus them, Which is not exactly what I said. I was talking about our own overweight versus what happened in Q4. So I would not necessarily go to argue that we will outperform simply because, Say, U. S.
Rates deflate, it would be it would depend on what happens segment by segment. So I would say another way of putting it, if all of the segments of fixed income Perform reasonably well, we would be certainly closer to the market average, right? But I would not link outperformance of our FICC to the deflation Of the current, say, overactivity in credit or U. S. Rates, for instance.
I hope I'm being clear. Please follow-up if I'm not. On the equity Beside, this is mostly the balanced commercial performance and more a matter Of commercial performance, so a decent flow at decent margins. It's not some sort of a windfall coming from much improved hedging conditions, Especially as through the redesign that we're going through, we have Fastly improved in my view, the way we operate, but lowering our exposure and lowering our sensitivity in terms of managing the underlying risks. And so the pure risk management of it, the pure hedging Result is minimal actually.
So it's on the contrary decent commercial performance. As I said earlier, with decent margins, which have improved Because of the, I would say, slightly lower supply, while the appetite was clearly there for these products. So that's the dynamic. I hope this is this addresses your question.
Sure. And just on The ratings?
Yes, indeed. During the year, we kept quite a proactive stance in terms of Updating the ratings in the entire portfolio, we do this at least annually at any Event and also, of course, each time we are granting new facilities. So we did already take An important part in terms of RWA inflation, which is close to EUR 7,000,000,000 this year, it's included in our numbers, of course.
Thank you.
So a much better outcome than guided, right? Right understanding.
Well, I think at some point, we had said we grew as high as 10, so it's a bit better. But in terms of basis point on capital, I think it's still reasonable.
Next question?
The next question comes from John Peter Roger, Analyst, HSBC.
Whose name? That we're going for. But yes, anyway, a couple of questions from my side. So firstly, coming back to The next round of TLTRO in the summer, just wondering how much headroom you have left in terms of eligible collateral to expand your Telstra usage beyond the current €63,000,000,000 So are you getting close to maxed out? Or could you see that really move on a needle as we get into the back end of the year for the NII benefit there?
And then secondly, on retail scenes, I appreciate lots of areas still pretty subdued, but just curious to see, are you seeing much uptick in single stock trading by retail clients at the moment? Or is that not really your target client base these days in thinking specifically kind of borcerama?
Those are my two questions. Thank you.
Yes. John, Peter. So first, William will answer the availability on the TTR. And perhaps Philippe can comment on Botswana. You may start the retail side.
We don't see the same trends that we see in the U. S. That we did On the retail order, but it was dynamic with Botswana. And I guess it should be the case this year if the market is Also positive, but we see. And on the first, William, how many Good.
Dan, Peter, it's very simple. We consider Taking stock also of the change in the percentage of eligible Liabilities that we have the room to add €10,000,000,000 roughly to the €63,000,000,000 I've mentioned, so going to €7 €2,000,000, €73,000,000,000 in total to which you would apply the beneficiation should it be Should we cut very happy mid? So
and Philippe on Retail in Barcelona?
Yes. Yes. As you say, it was a quite pretty strong year on market activity with Boufforana. The impact of all of that is that we consolidated and to a certain extent, we We concur the position of number 1 in the online brokerage in France, led of Board Direct. I can share some key numbers with you.
For the full year, we increased The number of new securities account, it was 2.5 Times level of 2019. And regarding the market orders, For the full year, it was basically twice the volume of 2020. So a very strong year. Overall, as As was mentioned by Sebastien for all the networks and financial fees were quite good. So strong momentum, which It's still there.
It's also a robust beginning of the year.
Thank you. Next question?
Thank you.
The next question comes from Giulia Miotto from Morgan Stanley. Madam, please go ahead.
Yes, hi. Good morning. A couple of questions for me. First, a clarification actually. When you Say that you are committed to positive operating jaws in 2021.
Is that on reported? So it includes restructuring costs Or is it on underlying? That's just a clarification. And then on the ongoing merger between SocGen and Craditunol, I wonder whether you have an update how that is going, whether it has started And any decision also on the brand, whether you're merging those or not? And then finally, I'm just curious, you were you mentioned digital assets and the fact that you see an opportunity there for SocGen.
I was wondering what Thank you.
Yes. Hello, Julia. I will turn the floor to William And then Sebastien will comment briefly on forge.
Hello, Julia. Thanks for your question because I realized that I may have not been Clear enough. So we steer the cost base of the company on an underlying basis, the 16.5% is underlying, Lower than 16.5 percent by 2023 percent is underlying and the slight increase refers to underlying combined with positive jaws referring as well to underlying. On top of it, we will be as precise as we can Over time, pertaining to communication on restructuring charges. But as I said, As you know, we think it's manageable.
We have the capital to do so. We can offset a large portion of it. And more fundamentally from a shareholder standpoint, let me repeat that the payout for the dividend calculation is based on underlying. Yes.
Good morning, good afternoon, Julia. So a couple of points Regarding this merger, so first, we have nominated all the people Working on the merger on a day to day basis with clear responsibilities, that's for this kind of project, it's very important to have an organization Well designed to deal with all the different topics and the challenges. 2nd point, We have started the negotiation with the first round or part of the long process with the trade unions. So the first part started last December and will end end of March. That's an important step in the process followed by another round of negotiation, which will last Until the end of 2021.
Simultaneously, we are working hard on the IT migration preparation phase. And the last point, we have nominated we have a new management For one region of Societe Generale French Retail and one New manager for French Bank of Credit Union by mixing the 2 cultures. So concretely speaking, So management from Societe Generale has second position within Credit Union and inversely. In order to start promoting a common culture between the two brands. And regarding The brand strategy, nothing to share with you today because we are still working on this important part.
And briefly on Forge, which again is an internal start up with people from Societe Generale having developed A startup from this initiative, it's around crypto asset. I don't know how familiar you are with that, but let's say trying to build Both technical framework with kind of blockchain technology, but also the legal framework, which is probably as important Because you talk about something new and the category of assets and the definition of legal ownership, the definition of the instruments itself to be adapted. So trying to build an infrastructure, which might be used for whether it's So custody, asset management, bond issues, all the market activities And with probably also potential development, but it's a little bit remote also on digital currency. So It's kind of, if I may say, like an industrial corporate applied research and development. And I think it makes sense because it's one of the areas that we have identified as one of the promising areas for innovation.
But it will not change the revenue line for 2021, 2022. Let's also be very clear On that front. Next question?
The next question comes from Jacques Henri Gaulard Sir, please go ahead.
Yes. Good afternoon, gentlemen and Julien, sorry. I have two questions. So Interestingly, I was expecting a new strategic plan for the group this year. And in a way, it's weird because we have everything, right?
We have the numbers for the retail. We have the numbers to a large Then on GBM, we will have more detail at the first half of the year. We know what Basel IV is going to be. So the platform and the framework is there. So I was wondering what drove delaying that in detail.
That's the first question. And the second question is something which is still strange to me. We had the worst crisis since World War II. The cost of risk is really under control, And you've done extremely well there. And we understand how the support is basically working, but aren't we paving the way for a major sovereign crisis within the next 3 to 4 years?
Thank you.
Jean Pierre Henri, hello. First, let me just highlight, as you said, we are going to put Present the trajectory for a lot of our core businesses. But before, if I may say complement the full picture On capital allocation, everything related to your RoTE target, mid term, I would prefer to have more clarity on the environment, Economic environment, I would have actually on the regulatory side, it's not so clear when and how that goal 4 will be implemented. Probably, we will have a better feel for that in mid year and beyond. And third, I'd like to have more even clarity on the capital on the capacity to pay dividend.
It's still 2021 a strange year with The supervisor. So I think in order before putting figures, very precise figures, I would prefer to have more clarity. And precisely as we give a lot to investors in the market, I think people can have a pretty good perspective on what we can achieve. Your second point, again, I think that Denis could further complement. There's one thing which I would like to highlight, which For me, it's very important because we tend to concentrate on where there is government support, okay?
And we are French or British and it's normal. But what I like in what we've seen so far also is that we have not seen a significant increase of the NPL in areas where you have no government support. And if I may, in Africa, you did not have guaranteed loans like we had. So I think we need here to consider that so far, at least, we have shown effectively the discipline in the Credit origination and the quality of the portfolio. As you've said, of course, well, So rent debt is increasing, not just in Europe, in the U.
S. Massively. After this, it's difficult Say what the outcome of all this can be, and you can have very different scenarios. I would say, I think it's not Sorry, a short term issue for 2021. Going forward, I'm of the, if I may say, religion, if I can say that, We're effectively a public finance at some point will have to be managed and the trajectory To come back to discipline in terms of budget deficit, everybody understand why governments are intervening.
I mean, let's face it, it's normal, It's necessary. It's useful. But when we will be out of the woods, I think here, of course, more discipline will have to be done. Okay. I hope I've answered your question, Jacques Henri.
Absolutely. Thank you very much, Frederic.
Thank you. Guillaume?
I've got one
Sorry? Sorry, Guido? Hello? Next question, yes.
Yes. So a clarification please on the impact of Basel IV. Is it net or growth Of the fact that the Danish Compromise goes from EUR 370,000,000 to EUR 250,000,000 risk weighting. And then my questions are number 1 on the cost again. So I know you see as a group with regard to underlying cost.
But on a reported basis, am I wrong that if I take your 16.5% underlying, Then I add some of the non recurring savings that you achieved in 2020. I add then a bit for organic and resolution fund and then the EUR 500,000,000 of Credit Union, which takes me to about EUR 17 €0.3,000,000,000 or €17,400,000,000 And then my second question relates to the capital gearing. So You want to be at all times above 200 bps above your NDA. Will that also be the case After the countercyclical buffer is implemented, in which case that means you will operate at 12% also under Basel IV. And then on the Corporate Center, you used to give a guidance for pre provision loss of EUR 500,000,000.
What's the guidance at the moment please? Thank you.
It's more than 2 questions and I hope that I have not been delivered, but William We'll try to answer most of your questions. First, let's clarify again on the cost and On the buffer, on the Basel calculation and the contrast typical buffer, which I hope to see, but I'm not sure we will see that so quickly given where we stand. But yes, okay. There are
many questions, more than 2, Guillaume, effectively, as the answer can be short on most of them. I'll start with capital. Yes, we do factor in the new the expected new weighting on insurance As you can imagine, as far as Basel IV computation is concerned, by the same token, but I will not disclose any number at this stage. We also take some assumption with regards to IFRS 17 In our in the future, it's too early to say what it can be, but we are prudent people and we know that at some point there could be some impact. With regards to the MDA, when we say it's 200 basis points above the regulatory threshold is what we think is palatable.
It includes whichever is the level of regulatory Requirements. But as Frederic said, we're not sure that we will see an increase in the contrast cyclical buffers anytime soon. But anyway, the commitment is 200 basis points above regulatory requirement. Corporate Center is another one that is easy. We don't We give 3 guidance, cost of risk and capital.
We don't give more guidance. I mean, there's too much uncertainty. But logically speaking, you can You would expect that there's nothing different from pre crisis. What's happened in 2020 It was some volatility, some of which has come back, some of which Decrease in liquidity cost and all that you know. On the cost, just to be very, very, very clear, because your addition It's a bit scary to me, or at least if that was going up to that level, I would be scared as a CFO.
When we say 16.5% and a slight increase. This is a slight increase. So I don't know what the numbers maybe you can explain about Credit Union comes from, but as far as underlying Is concerned?
Restructuring, I guess, with the restructuring. Okay.
So it's ex restructuring charge. Again, this is underlying. So this is slight increase On the underlying, just to be specific, in our underlying cost, you have the tax. So you have the contribution to SRS. So we don't differentiate this part of it.
We're just saying that this slight increase Includes a potential increase in the IFRS contribution. Is it clear for you or do you want
If I take EUR 16.5 million of underlying, I grow it a bit and I add EUR 500,000,000 of restructuring charge That alone takes me north of EUR 17,000,000,000 I just wanted to double check that.
If you again Yes, the
right competition is effectively underlying the slight increase including The SRF. And on the side, you have restructuring charges. And as I said, they are not in the underlying There are restructuring charges exceptional in nature and finance differently and not build to the shareholder as I said.
Okay. Thank you. Thank you. Next question?
The next question comes from Matt Clark from Mediobanca. Sir, please go ahead.
Good afternoon. A couple of questions on asset quality, please. So first one, could you give a bit more detail of why your Stage 2 loans went up so much in the Q4, and you didn't really seem to take that much more provisions against them, I mean, a bit more, So the coverage fell quite a bit. So we've seen that trend elsewhere. But could you just explain for you why that was and why you didn't feel the need to put aside More in the way of Stage 2 provisions in the Q4.
And then second question on cost of risk is about your guidance to be down year on year. Clearly, one of your major peers has guided a bit more specifically that it should return to the over the cycle level this year. I mean, is there any reason why yours couldn't do that, why it couldn't see a very meaningful improvement Rather than just being down, which could be just a basis point better rather than 10 or 20 basis points better? Thank you.
Yes. I will turn the floor to Jordi and declare we took a very prudent and conservative assumption in the 4th quarter To put all the so called sensitive sector in the S2. So please, Janine, explain the rationale.
Yes, indeed. In Q4, we took a prudent approach. 1st, we updated our scenarios and we have in our multi scenario approach, which weighs quite significantly the stress scenario at 15% plus adding an extended health crisis scenario, which is a sensitivity to our central scenario in a way. The second thing we did also to prepare for the future was indeed to look at all Exposed and vulnerable sectors, other adding overlays when we saw to that Modeling didn't lead to the level of provision we believe that made sense given the specific Impact on certain sectors. And second, as Frederic said, we moved to Stage 2.
The exposures in vulnerable sectors, which were originated before the crisis, Considering that they have gone through a significant decrease in credit risk, hence, moving to Stage 2. So all this has translated into indeed a significant provisioning on performing loans, stage 1, Page 2, which represents more than 50% 53% of the total cost of risk of Q4. So as far as our guidance is concerned sorry, you wanted a follow on question on this?
Can I just ask why the coverage of your Stage 2 came down so much then? Why was it that the new Stage 2 loans that you've been in the Q4 or towards the end of the year Need much less provisioning against them than your existing stage tubes? Because I think your in one of your
slides, Yes, Matthew, it's very simple because we decided to include in the sectors with investment grade names, which will never default. It was very conservative. So for example, we put the whole sector, the BP, the total of this world. Just to try to make you understand how conservative we've been.
So the average rating of our Stage 2 actually is higher given the fact that we have moved to Stage 2 entire sectors including
Very clear. Thank you. And sorry, I interrupted.
Yes. We said below indeed 2020. I'll remind you that for 2020, we came below our guidance. So we take a prudent approach again to reflect still uncertainty on the pandemic situation. Our scenario is based on the fact that we are not going back to 2019 levels before end of 2022, 2023.
And this leads Indeed, to at this stage, quite a conservative assumption in terms of cost of risk, so below 2020 and progressively
Converging
to normalized level as the pandemic situation gets under control.
Thank you very much. Next question?
The next question comes from Antti Reggins, Bank of Canada. Please go ahead.
Yes, thank you. I just had one remaining questions for me. On the buyback you talked about for the second half, I just wanted to understand, yes, how high the hurdle is for you to get a sign off, if you can talk about it. Because I guess That would take you in combination with the dividend, yes, I mean, close to 100% of underlying EPS in 2020. And I'm just trying to understand how important the payout ratio is relative to your current capital ratio And your ability to say how likely that payout or the buyback in Q4 is?
Thank you very much.
Hello, Henk. Really, I think you know, it's just to have the global authorization to To resume additional distribution, because we talk about 13 basis points of cost of capital, if you wish, versus the kind of Q1 we have. So it's really I don't see any hurdle or any particular problem with such amount and given the quality one we have. It's just that the SSM has to be happy for European Bank to complement the distribution of the first half.
Okay. Thank you. Yes, I thought the profitability might play a role as well, but I understand.
Sorry, what?
I thought maybe the profitability would need to play a role as well in 2020, but I don't hear your comment on the capital ratio. I hear that comment.
No, no, I don't think so.
Okay. Okay. Thank you.
Next question?
The next question comes from Flora Borkayou from Greece. Madam, please go ahead.
Yes. Thank you. Good afternoon. One last one from me as well. I'd like to ask you on the Slide 28, where you provide Your 2021 priority, when you say in the column on the creation of value for your shareholders that you want finalize the refinement of your business model.
Just wanted to ask if you could elaborate on what you have in mind in there. Obviously, I'm not asking you to give names on which activities you may keep or not. But just generally, how you're thinking about it? What criteria you considering to assess the idea of business mix that you want to target? And the question goes both ways in the sense that there are areas you may think about disposing.
But then In terms of acquisitions also, where would you potentially be interested? Thank you.
Yes. So I will, you're right. I think the idea is Say, we need to finalize that. So of course, in particular, in GBIS on the 10th May, we will explain where we want to perhaps allocate even more resources within The activity and again explain better why we think we can compete and where we want to compete. And beyond, As we have already done in the past, just to review the portfolio and assess effectively there are opportunities which can help us to improve the overall return of the group, consolidate further leadership position and on the other hand, So we dispose of businesses where we think we are not the best shareholder.
Obviously, it's not for capital purposes given where we stand, optimization of the profitability. And Today, my major focus, whether it's on the cost, whether it's on risk discipline, but of course, on optimization of capital allocation. And I think we will try in 2021 to complement this picture that we have already started to elaborate upon We have a few trajectory of certain businesses. So we will work on this in 2021.
Thank you.
Next question?
We have any first we don't have any further question. Please go ahead for
Well, listen, I think it was already a very comprehensive call. Let me just say again, We showed in the second half that the group is able to rebound. And I think the idea is to further show that in the coming quarters. And again, thank you for attending this call. Thank you very much.
Bye bye.
Ladies and gentlemen, thank you all for your participation. Station, you may now disconnect.