Ladies and gentlemen, welcome to the Societe Generale Conference Call. Frederic Oudaya, Chief Executive Officer and William Cadouchacin, Deputy General Manager, Head of Finance, will present the group's 2nd quarter and first half twenty twenty one results. Gentlemen, please go ahead.
Hello, everyone. Thanks a lot for participating to this conference call on our Q2 and First half results. As usual, we will make a short presentation with William Cadouchacin, our CFO and our whole management team will then answer your questions. Let's start. And if you have the presentation with you, Slide 4, let me just recap the main highlights of this Excellent performance for the Q2.
As you can see, a strong quarter. When we look at the net results. You have to come back to 2016, the Q2 actually to see a similar number, but in 2016, It was boosted by a strong equity capital gain. So fundamentally, it's probably the best quarter in the history of the group And of course, a very strong first half. All the businesses contributed, as you can see on the revenue line, Plus 20% on a like for like basis and at constant exchange rates with a strong quarter in GBIS in Global Markets and Financing Advisory, Very good performance in the financial services and across the geographies, a rebound in retail activities.
As you might have seen, we are maintaining a strong discipline on the costs and the gross operating income is increasing by 55%, with a strong improvement of our costincome ratio. Something which is also not disabled is, of course, the very low cost of risk. We will elaborate on this. It's the illustration of a very low number of defaults, while we preserve a very prudent provisioning policy. All in all, we delivered a strong Debt on tangible equity, 10.4% for the quarter in underlying terms.
Liam, the outlook for 2021 is improved in our view. We now confirm a growth Our revenue for all our businesses, we confirm improved positive jaws And the downward revision of the cost of risk guidance based on this first half, we consider that the cost of risk for Full year should range between 20 basis points 25 basis points. And regarding our capital, you will see that We are maintaining a strong quarter 1, while confirming our share buyback program for the 4th quarter equivalent to the amount of EUR 470,000,000. That means that we will have distributed the equivalent of €1,100,000 per share all in this year for 2020, While the position for dividend for 2021 and for the 1st 6 months is already €1.2 so that means That we will, just in the next 6 months, distribute more than for the full 2021 year. Let's turn to Page 5.
I'm happy to answer your question on ESG. Let me just highlight that what we wanted To illustrate in this slide is that we are now working on the ESG Innovative Solutions In every geography with all kinds of clients, whether it's developed or developing countries, whether it's large corporate, retail for Sovereign as illustrated in Africa. And we are happy to see that our ASG research has been rewarded a strong industry recognition. As you know, we have now included systematically in our research since 2020, a strong ESG angle. I will turn now to William, who
will elaborate more in the figures. William? Thanks, Frederic. Good morning all. Thanks for joining this call.
I do hope You're doing well. Let me turn to Page 7, reiterating what Frederic just said on the net income. The published net income That's EUR 1,439,000,000 and the underlying stand at EUR 1,349,000,000 After the adjustments pertaining to Ifrick, an €85,000,000 of transformation charges, Of course, this translates into a return on tangible equity of 10.4% and 11.2%, respectively. The key element behind this strong earnings growth is on this page is obviously the greater operating leverage of this company. We committed to strong positive jaws and we have Strong positive jaws improving positive jaws, in fact, sequentially.
And this translates into a gross operating income of 55 Percent adjusted for ferritin for exchange, it's actually 60%. And of course, also a decrease in the cost to income ratio to 67%. To put things in perspective, remember that pre crisis, Our cost to income was about 70%. This is true for 2018. This was true for 2019, when we started the journey towards decreasing the cost base, that's to be compared with the 60 7% I just highlighted.
Logically, this is due and that's on the next page to the way we manage costs. We want to The strong cost discipline for the first half, you have an increase, which is a limited increase of 1 point 7%. In fact, when you look at what's behind that cost evolution, you find mostly Variable cost components and higher IFRS 21 charges. We had already talked about that in the Q1. Fundamentally, the intrinsic cost base is flat to decreasing.
Strong positive, Joe, as I've already mentioned, and the cost to income for the first half at EUR 67,000,000. The second component in the performance It's obviously linked to cost of risk. We have that's on baseline. We have a very low cost of risk. This is a historically Low cost of risk for each and every division.
And as for the extent, we don't expect the cost of risk to be nearly where we expected it to be at the outset of the year. This is why we decreased the guidance from 30 to 35 basis points to 20, 25 basis points. You remember to all that 10 basis points equates to approximately EUR 500 €1,000,000 on a cost of risk on an annualized basis. Let me point you to the non performing loan ratio. It's decreasing to 3.1%.
It's not just the ratio that is decreasing, this is also the absolute amount of NPLs. And this is due beyond the improvement in the environment to an active proactive management of NPLs, we sold some portfolio in the retail in Q2. Behind this performance in cost of risk, The only factor, in fact, is the limited defaults. As Frederic said, we see very limited Stage 3 provisions because we see very limited Defaults, you see the EUR 164,000,000, which you debit is a very small write back of EUR 22. I say it's very small writeback because what you have on the right hand of the page is obviously The picture of the representation of our prudent provisioning approach, we keep the EUR 3,600,000,000 approximately Amount of provisions that we had increased in 2020.
Core Tier 1, Page 11, you see Core Tier 1 is strong at 13.4 Which is 440 basis points roughly buffer above MDA. It's Pretty stable, minus 10 basis points. What you have here, the story is pretty simple, very strong capital generation on the back of the results we just commented, you see 18 basis points that's after provision for dividend. For the first half, organic capital generation was 44 basis points. To be compared with the historical through the noise, through the cycle, organic capital generation of the company of About 20, 25 basis points.
So only in the first half, we had 44, and that helps compensating The cost of regulatory charges for the quarter, all were expected TRIM and TR We may want to comment if you have questions on that. And as you see, pro form a, the share buyback, This would be the same, L'avon 13.4%. All the other ratio are strong. Let me also mention that our funding program has been completed for the year in good terms, Actually, better than what we forecasted at the outset of the year. This is why we speeded up the program.
Turning to businesses and starting with French networks. As you know now, we comment first to Cite de General, Exhibizunore and then Boursorama So we wrap up for the whole pillar. Frank, you see the dynamics, commercial dynamics on the Page 14 improving. Production loan production is improving sequentially versus Q1 and also obviously in terms of production versus Q2 2020, it's still not where we were in terms of the path to growth path of growth in 2019, I think, prices. So this is a good sign to see that it's picking up a bit in some areas, particularly home loans and corporates.
Deposit collection remains strong, which is good for the balance sheet, but not maybe as good for the P and L, Of course, given the negative rate. On the right hand side, we have very positive dynamics on the non balance sheet savings, Life Insurance outstanding our Private Banking, the net new money, it's record level. And on bank insurance, we continue to make progress with P and C and protection contracts. That is very important because this reflects the strategy we have announced to be very proactive in converting on balance sheet deposits towards non balance sheet as well as P and C penetration. Borsellorama had a very strong quarter.
In fact, you see 168 ks clients acquired for the quarter, up 24% from last year. But when you look at the production, you see that it's speeding up Plus 40% if you compare to the client acquisition in Q2 2020. At the same time, Bouygues Suramar continues to monetize well It's client base. You see strong growth in credit in loans, strong growth in deposit and financial savings And still good growth in brokerage orders. When you adjust for the acquisition cost, which are well in check As far as Bouyguesorama is concerned, you get to an above 15% adjusted return for the first half.
To wrap up, in French detail, You see a good growth for the quarter, 8% as well as for the first half, 3% with the NIM Up 1.6%, very good momentum in fees, operating leverage translating into a strong Q2 return on normative equity of 14.2%, 15% if you exclude the acquisition cost of BOSSARAM. Turning to International Retail Banking. There again, you see an improvement relative to Q1 in International Retail and strong growth year on year. You have the productions on the top of the page, which I won't comment. Maybe a word on the revenue dynamics, 3% in Europe, 4% in Russia, a hefty 17% for Africa.
Would you should you adjust from some big effect we had in Tunisia last year that would be still Good 8% growth after a very resilient year for Africa in 2020. And you see this is across the board. Loan production is picking up, But also fees are very strong. To be noted, particularly for Europe and Russia, we are just at the beginning of Central Bank Raising Rates. So this bodes well for the coming quarters year.
The profitability stand at a hefty 17%. Financial Services, very good quarter again across the board, starting with insurance. We see the outstanding up for life insurance as well as good growth in Protection Kenya across geographies. What is important is what we do in life insurance is quality new money. We have An increase in the share of Unit Linked, that's very important both for the results as well as the risk profile.
Then you see overall insurance growing at 13% when adjusted for Perimeter and foreign exchange. Pareto Services to Corporate is very much It's very much driven by ALD. Also, we have good trend in leasing as well. You see a 50% close to 50% growth. ARD, it's important to note, you have seen the presentation that it is, of course, explained by the increase in the car sales results, but it's also fundamentally linked to the increase in the contractual gross margin.
And overall, for the IBFS Stivalain, strong revenues, plus 17% across the board, positive jaws and a return on equity of 20%. Turning to CIB, we confirm what we had said, starting with markets, which is The recovery of our market operation, which has been observed for about 4 quarters in a row, we end up So EUR 1,200,000,000 for quarterly revenues for market activities. You see equities up above Their average in 2019 and their long term average, you see 21% above 2019. And that's Across the board, we will comment that with LaVoniere, listed products, structured and flows. FICC is down.
It is down a bit less than the average of the market, still down relatively to 2019, 6%. We benefit from our strong exposure rates than credit. But obviously, 2021 has is less buoyant for FICC than 2020 was. Turning to Financial Advisory, strong quarter. To put things in perspective, you know that Slagomie had told you But we expect 3% growth per annum.
So in this quarter, we achieved 13%. We have A strong growth across the board. I won't comment each and every topic, but you see us in Finance and Natural Resources, would that be Renewables and some areas such as shipping, very strong asset backed product and transaction banking, up 25%. Asset and Wealth Management, let me point you to the 8% adjusted growth for Private Banking, adjusted from an exceptional item we had at the same period of last Sure. This is on the back of very strong net positive inflows.
In fact, the pace at which we collect new money is well above the historical average. We have strong net inflows as well as on LiXO. And to wrap it up, for GBIS, which is Page 22, same pattern as you have seen with other pillars, a bit more dramatic even, 28% revenue growth. Operating expenses only, I would say, explained by variable cost. As you would expect, the other expenses are well in check-in the program the cost program is executing well, positive jaws And a return for the quarter close to 12%.
For the first half, it's close to 15%. Corporate Center, not much to mention. Just to reiterate what we had said in the Q1, The €85,000,000 transformation charges, the detail of which you can find in the footnotes And as well as in the appendix are only now accounted in the corporate center, but they pertain to various areas. That's to help the presentation of our results and the reading for you. Underlying gross operating income for the first half is minus €96,000,000 so lower than but better than the usual and very consistent with the guidance.
Thank you, William. Let me just conclude by a few words. As you can see on Slide 25, we have reached A result in profitability, which is above the pre crisis level and actually is even The best in the last 5 years, equal to the highest half year that we recorded again in our history. It is on one hand, of course, the definitive positive answer on the question on the specific issue of Product structured, the franchise is well functioning. But beyond, I would say, the relentless efforts Last year, so to reposition the business model, strengthen the franchises, lower the breakeven and of course, maintained a strong risk discipline.
As I said, we remain positive for the second half. We tend to think that the economies should do well. We consider that despite the data variant with the progress of vaccination, We would not experience a similar lockdown than the ones we had in 2020. We are again supported by good commercial activity in all our businesses. We have We are confident to maintain the strong discipline on the cost.
And as you've seen, we have been very prudent in our provisioning policy, which is A guarantee for the cost of risk going forward and even beyond 2021. So we are really committed to to our different strategic projects and of course, deliver a sustainable and profitable growth. I think there are opportunities in this market, and we are well positioned to grow our businesses. That's what we wanted to say. Let me just highlight that at the end of the day, As ESG is so core in our strategy, we decided to postpone That we might make again in the short start of 2022 to finalize our trajectory for the 2025.
All right. That's it. Now we are ready again to answer your questions. As always, and I know you are very disciplined, let's
First question is from Madame Flora Bocayu from Jefferies. Please go ahead.
Yes, good morning. Thank you for taking my questions. I'd like to ask 2, please. The first one is regarding provisions and the second one is regarding ALD and M and A more specifically. On provisions, the guidance that you provide today implies a higher run rate in the second half of the year than in H1.
So just wanted to clarify why and if this is just out of caution. And also, you mentioned it in your presentation, but You haven't touched much to the Stage 1 and 2 provisioning that you did last year. Do you expect that there will be at some point More reserve releases and if so, can we expect that this year or it's more a story for next year? On ALD, just a quick question, because the IPO was partly with the objective to use the shares as a currency for M and A. Obviously, there's been press reports recently about some potential interest around this plan.
So can I ask you as a broad question on A and D and M and A, What are the key criteria that you are considering when you think about M and A there? Is it more scale? Is it access to new markets, to new expertise? And would you be ready to spend a decent part of your excess capital on such M and A? Thank you.
Hello. Good morning. I will let Dionil Leopold to answer First, your question on the risk and perhaps elaborate on the performance of ARD, which is actually spectacular for the first half. I'd like to take your strategy question, if I may. And of course, we don't comment on any market rumor.
But I would like you to highlight, First of all, our conviction that we can grow organically strongly our businesses. And regarding more The ALD, what we do and what we have done in the past is to complement this organic growth with a small and bolt on acquisition with a Partnership mindset, which has functioned very well so far. Going forward, in terms of capital usage, We want to ensure that, 1st of all, we finance our organic growth. We can consider acquisition that will not have Significant impact on our capital trajectory. That's the discipline we want to keep.
And of course, have this strong and attractive return policy to our shareholders, as I said, of 50% of net profit. So this is a discipline we will keep looking at potential acquisition if there were opportunities. The reason for acquisition, well, we will look at start To complement new business models, and we are doing that more and more. We can look at businesses which effectively gives For the scale and so to have cost synergies, I don't think that currently with so much Changes we would consider, for example, entering into new geographies, etcetera. So it's more really to further enhance the profitability.
And again, we tend to look at start ups. It's true actually for IRD too and to complement very attractive business model, which I think will have strong value creation. Now, Duniya, on the provision and again on ALD because I think it's worthwhile.
Yes. Thank you for the question, Florent. Yes, just to compliment on ALD, indeed very strong Record results for ALD with 70% close to 70% increase in revenues. Of course, part of it is driven by exceptional environment in terms of used car Sales with short touch of used cars and also the semiconductor Issue which delays deliveries. So we had, as you saw, EUR 7.40 per car result.
The outlook remains positive for the year, which allowed us to provide a more Precise guidance on used car sales of €600,000,000 to €900,000,000 per car. On top of the excellent results and as said by Frederic, ARB is also moving towards the strategic objectives of the Move 2025 with, as you probably saw, some targeted Position with Skipper, which is a startup specialized in mobility as a service. We have also announced the partnership the acquisition of Sabadell Lizzie, which adds 20,000 cars and partnerships such as an important one with Smart, which is a 100 percent electric vehicle company. Also with the trend of The electrification of our fleet, which is a significant trend in the market. So overall, good progress, Both in terms of revenues, profitability and strategic roadmap.
Maybe shifting So tell me to your first question on cost of risk. So as you saw, we have a very low cost of risk, 11 point Basis points, it's 16 basis points for the first part, which indeed gives us confidence on the revised guidance of 20 to 25 basis points. We have maintained almost stable our 1 these 2 provisions, which are of EUR 3,600,000,000. The outlook is that we consider that There could be an increase of cost of risk in Stage 3. It's extremely low across the board, as said by William already, that we could See some pickup, and we want to remain prudent in our scenario, especially with the COVID the situation maybe having prolonged.
Having said that, our H2 outlook remains positive with the development of the situation, the kind of our portfolio and the quality of our origination and our prudent provisioning policy.
And it's hard to say, I think this guidance does not include significant write backs on the provisions in the second half. So effectively, it will be done more In the 2022, yes.
Thank you.
Next question?
Next question is from Mr. Jacques Henri Gaulard from Kepler Cheuvreux. Sir, go ahead.
Yes. Good morning, everyone. Two questions. First, I think this morning, I read on Bloomberg, Frederic, that you had given an outlook which was probably a little bit less sanguine for 2022. So I don't know if that was a mistake or if you want to clarify On the back of what you said.
The second question is on the stress test by the ECB on Friday. When I look at your performance, It's really in line with the European average, except in one area, which is the cumulative pre provision profitability, which is materially weaker. Could we have a little bit of a view if you analyzed it about what went wrong there versus the rest? Thank you.
Hello, Jacques Henri. What do you mean exactly in your Second question,
please Yes, I mean, if you look at the stress test of the bank, okay.
Okay, sorry, sorry, sorry. Yes, I missed that. Okay, okay. Well, first, well, I will answer your question. It's really on the economic outlook that I was commenting.
Our economists have always been to a certain extent and since the beginning of this year a little bit more positive on 2021 than most institutions and including in the European region. So for example, they had forecasted a 6% pickup of the French economy in 2021. And on the other hand, they have also always been more conservative for 2022 than again the European Commission, ECB, the IMF, saying that at the end of the day also, it's the sum of the 2 years, which was the most meaningful, if you wish, to assess their overall forecast. And it's fair to say we tend to consider that there might be more There is perhaps a question mark on the consumer spending, for example, whether or not it will pick up structurally. Of course, questions on inflation and monetary policies, some questions also in the supply chain, etcetera, etcetera.
So that's why that's what I was referring to. It's not related to Societe Generale perspective, but it's the economic forecast. Now first, Jonny, on the stress test, I think it's worth explaining a little bit on these impacts.
Yes. Hello and thank you for your question. So indeed, as you saw, the stress test was quite severe and It's all banks, but it has also shown the resilience to extreme shocks of European banks. As far as we are concerned, we saw an impact of 700 basis points. As you said, We are a bit above European average, below average for French events.
When we look at what really makes the difference, it's one related to scenario. Scenario in France is quite severe. It's business mix and it's methodology. The business mix is related to The relative part of our market activities, which under the UBA's trust test go through quite significant shocks. You have in mind the minus 45% to minus 55% on equity with no possibility of hedging or management actions.
There is also the methodology on market risks, which contains caps and floors. So the past have impacted the projected revenues. And given that in 2020, we had suffered from the market losses and the COVID crisis. And the flows impact the level of Roger, as our derisking occurred in the end of the year and the methodology forces you to take an average. On top of that, some banks have benefited from one offs, which some are quite significant, which was not the case So all in all, we did more impact given our Market activities and the specific situation of 2020 where our results were lower than our normal trend in terms of market activity.
Super clear. Thank you very much.
Thank you. Next question.
Next question is from Madame Delphine Lee from JPMorgan. Madam, please go ahead.
So my first question would be on the French retail. Now you're guiding To revenues improving, I was more interested in particular on net interest income, what that implied. If you Don't mind elaborating a little bit what you're expecting on volumes, margins? Are you concerned that volumes could start normalizing? Or is there any pressure significant pressure still coming from the deposit Margins in particular.
And then my second question is on the capital return. Just wondering if in your 50% payout ratio for this year. I mean, you talk about the $120,000,000 of cash dividends. And I'm just wondering if you would consider including some buybacks, which you have done for 2020, but again for 2021, if there's any component of buybacks? Thank you.
Hello, good morning, Delfin. I will leave the floor immediately to Sebastien to comment and answer your question about transliter. Yes, Let me just remind you that our policy on dividend is to say, we will distribute all in 50% of our underlying net profit. And within this 50%, we consider that up to 1 5th could be dedicated to Potential share buyback program, the rest being, of course, a pure cash dividend. So yes, we could and we will look at this at year end, Consider some share buybacks within this envelope.
Sebastien? Yes. Good morning, Delfin. So coming back on net interest
margin, it's up versus Q2 2020, up versus Q1 2021. And answering your question, so we are using different levers to support the net interest margin. The first one being to convert site deposits into Financial Products. And obviously, second lever is to be very active to support credit production, which has improved which improves in Q2 and especially for mid- and long term credit to corporate and home loans of production to individual customers. As you said, there is still Pressure on the deposit margin coming from the increase of deposits and also the context of low rate environment.
So for sure, this context in terms of weight will last in the coming months, even years. But we are confident that using the different levers I have mentioned, we are well positioned to support the NIM and mitigate The impact of the low rate environment and the increase of deposits. And especially regarding deposits, we can imagine that just increased upside deposits in the future would be lower than the one we have had over the last quarters.
Yes, Gerald.
One important point I would like to mention. Obviously, We I haven't mentioned the fact that we haven't booked any second bonification for TLTRO in Q2. So we have positive growth of the Nantic West margin compared to last year, compared to Q1 without and his second quantification impact.
How much would that be in coming quarters?
We don't disclose that number. But as you know, we tend to be I mean, we obviously refer here to TLTR-three, for which we haven't taken on to anything, as Sebastien said. You know that we tend to be a little more conservative than the average market practice because we accounted over the life of the instrument, I. E. 3 years.
So if you do your calculation, you know that we have EUR 72 €1,000,000,000 of amounts, so you can multiply by qualification and expand it across 3 years, that's easy.
So you see, Delfin, I'm sure that you are good enough in math to make the calculation. It's relatively significant. And it will be just to remind keep in mind spread according to the full duration of the TLTRO, the so called TLTRO. So that would help On top of everything that Sebastien mentioned then. Okay, very clear.
Thank you. Next question?
Next question is from Mr. Jean Francois Neuez from Goldman Sachs. Sir, please go ahead.
Hi. Good morning. I just wanted to pick up on the questions that have been asked before. Very quickly, on the net interest income in France then, would you say that the second quarter in short is A level which we can consider as a trough in absolute terms because that would be a significant change compared to the trend of the past many years for this particular item. Secondly, I read this morning Arctic a headline from Slavomir, who was saying that the environment for equity seemed to be remaining good, supportive, as he said.
And I felt In the Q1 that his comments after the very strong quarter that was that took place were more towards Leading us towards the guidance of more conservatism maybe that headline would suggest. I just wanted to understand if anything has changed or What were the fundamental drivers? Because obviously, it's great development. And if I may you don't have to answer, but if I may sneak another one on the stress test. Do you think that your restructuring of the equities business of last year, which obviously took place after the cutoff date, I guess, of the stress test maybe for the full effect would have changed your outcome.
And to add to
our yes, I will leave Sebastien answer again your question on the NIM. Leave Slavenger comment on his comments on the equity perspective. Again, just as Jonny said, if you had done the same process Today, so 6 months later, it would have been better, in particular because again, in the way it's done, You capped the floor you capped the revenues at the you had to cap the revenues at the 2020 levels. And obviously, In terms of capital generation, given the kind of revenues we do today, it would have been effectively better. So probably we are losing A few dozens of basis points because of that and the different effects.
That's fine. And but structurally, I think We are improving the potential future results of the stress test for Societe Desjardins with what we have been doing. Sebastien? Yes. Good morning, Jean Francois.
We have given a
guidance on the French Retail revenues as a whole, Seeing that we expect positive growth of revenues compared to 2020, which is A slight change compared to what we said last quarter. So we're Clearly, more optimistic. I would not give a sub guidance on the different components of the revenues. What I can say on net interest margin is that we will use we will keep using the same levers from the ones I have mentioned, I. E, converting side deposits into financial products and boosting credit production, which are the 2 main levers to support net interest margin in the future.
So hello. Thank you for the question. I believe that My comment was referring to the environment mostly. And clearly, Let me walk you through my reasoning. If you compare the current situation versus our conversation a few months ago, you have A market where you have sustained trends, stable volatility at high recently high levels, but without any exceptional spikes or exceptional volatility of the volatility.
So you have a continuation of this good combination of factors driving Investment Banking activity in equities. So it's, let's say a good environment. So that's what I was trying to say. And looking forward, at least to 2021, and I'm talking about the market here, You have trends that will remain because you have unanswered questions about the macroeconomic long term economic outlook and about monetary policy in the context of the inflation theme. And these, I believe, are going to be reasonably positive drivers for the market, right?
If I turn to our own performance And again, commenting on your comments about my comments from last time, we are down 10% because Q1 was And I was really expressing the caution versus truly exceptional market conditions. So in Q2, good news, they remained conducive starting in May after an April, which was very slow on the back of very low volatility, but picked up again with all the Refleishant team reappearing, so to speak, in the conversations on the buy side. And but still, it was lower than Q1, Right. So I don't know. I hope I'm being clear in the sense that I believe that the equities market conditions will remain reasonably good, Not comparable to Q1, but reasonably good.
And our own ability to be relevant in these markets should be unchanged.
Thank you. Next question?
Next question is from Madam Julia O'Hara Donato from Morgan Stanley. Ma'am, please go ahead.
Yes, thank you. Hi, good morning. So my first question actually more than on the quarter is really More forward looking, it's about the integration between SocGen and Credit Su Nord. So how is that project progressing? Can you give us an update of The milestone achieved so far.
I don't know if maybe you're going faster or almost lower than you had originally anticipated. And then in terms of loan growth quarter to date, So the most recent things that you're seeing on the ground, which areas are showing the best Trends and which ones are still quite subdued. So that will be my question around French Retail. And then secondly, international retailing spend. You mentioned that, of course, the Czech Republic and Russia rate cycle are positive.
Could you quantify that if we take the current market forward, what would that mean for Fulgent's revenues? Thank you.
Hello, Julia. I will leave the floor to Sebastien for the France retail and Philippe and Mike for the international retail. Sebastien? Yes. Good morning, Julia.
For your first question regarding the merger between Societe Generale and Credit Uno, I mean, everything goes as planned with a merger which will take place H1 2023, IT merger H1, legal merger January 2023, where is this difference between legal merger, which would be in advance of the IT merger. We will come back before year end around October with A detailed presentation of the project, including the different impacts and including The social impact of the merger. So we will give more detail in the coming months Not in the project, but again, everything goes unplanned and we are working hard to stick to the timing I have mentioned. Regarding loans and credit production, Q2, we had a rebound in credit for corporates, mid- and long term credit for corporates, Excluding state granted loans excluding state granted loans and also a reborn in home loan for customers. We born also in last June in consumer credit, which is good.
The production for of short term facilities and short term credits for corporate remains more under pressure in the context of excess liquidity, Corporates needs in terms of short term credits and facilities is obviously less important.
Thank you. Philippe on the International Retail.
Yes. Thank you for the question. So I start With KB, so that's true that the net interest margin of KB has been under pressure due to rates It's a reduction, but at slower pace during the Q2 and has been partially offset by a good level of production, notably on mortgages. And it has also been Said by a strong momentum regarding fees financial fees and non financial fees. So the we project 3 ICE of each 25 basis points.
One of them has already taken place. As you will See, KD will is projecting flat revenues more or less for the year. Simultaneously, there is a very tight control regarding cost base. Regarding the overall It is of International Retail Banking. BRD has also been impacted on this rate reduction, That clearly offset very significantly by a very, very strong momentum on production and loan deposit, also on fees and the other entities of the international retail, notably in Africa, has not been backed By this interest rate moves and as you as it was mentioned by William, The revenue momentum, it's very robust
in these entities. Thank you. Next question?
Next question is from Mr. Matthew Clark from Mediobanca. Sir, go ahead.
Good morning. So a couple more questions on French Retail Banking Revenues. Please, firstly, on the TLTRO, are you still confident that you will meet the And lending hurdle together a second, I guess, bonification of how you describe it, even if you haven't met the, I guess, threshold from an accounting perspective to book it already as you described in the footnotes of your financial report. And then second question, was there any material benefit from the resetting of the state guaranteed loans this quarter after the 12 months time period lapsed. Was that part of the reason we saw an improvement in NII and margin 2nd quarter versus Q1.
Thanks.
Hello, Matthew. I will leave the floor to Sebastien. Let me just So give, of course, my one decision, the TLTR effect is not just for France retail, he concerns other activities. And effectively, The objectives includes of the loan production that just France Mittel. France Mittel is contributing to that.
Now perhaps further explanation, Sebastien, on my few questions.
Yes. No, I mean, regarding the TLTRO, things are going in the right direction. So as I said, We have an increase of net interest margin between Q2222021 and then Should you 2020 without any impact or effect of the second quantification, but Thanks again. I'm going in the right direction at group level. Coming back to your Second question.
The benefit of guarantee, but there's not really any benefit in
the second quarter. No. There is not Such an important impact of the state warranty goals. Keep in mind that the pricing of the state warranty goals, it's So at cost, so that's not the kind of product where there is a high margin.
How do you define the cost? How do you measure that?
We were able to include this to issue all the cost of distribution. Yes. It's a liquidity
risk Liquidity, cost of risk and cost of distribution.
I think it will be if you wish, it will be better To have this midterm loan and the very short term at 0, but it's relatively marginal. And again, the people have Just made the transition towards the decision of amortization. So it's something again relatively limited Because again, the overall banking system committed to, as you know, do that without Excess margins, but we have been able to price the cost of putting in place these loans reasonably. Thank you.
Next question.
Next question is from Madam Adzora Guelfin from Citi. Madam, please go ahead.
Hi, good morning. From my side, I have two questions. 1 is on the CIB and one is on capital return. You have undergone a revision of Your CIB business and we have seen the revenue performing well also on the back of constructive market backdrop. But my question is more around The customer reaction to your restructuring, has it been more constructive?
What were you expecting? How have And you reacted to the changes that you have done and have you seen any cross assets impacting your CIB business? The second one is on the capital return and it's on the medium term, it's not just now. Shall we expect that the higher capital return from SocGen will come just because the Will you improve or given the strength of your capital position and the derisking of your business, there could be something more down the line? Thank you.
Hello. As you are, I will let Xavier answer your question on CAB. I think we already consider that So given the fact that we have to fuel the development of our businesses and we have growth potential in our businesses, Factoring also the different regulatory impacts and then to start with Basel IV that we Consider should be implemented probably now more 2024, let's be realistic than 2023 in our previous competition. But But again, 50% of net underlying profit is the right distribution Level, it provides an attractive yield to our investors. It can be against spread between, As I've said, cash dividend and of course, share buyback.
We really believe it's a balanced policy. And of course, And just reflected by the first half versus last year, it means effectively, thanks to the profitability improvements more for our shareholders. But I think it's really the right balance given our business model. If we had if we are just the retail bank in Eurozone, I might have a different answer, but we have in our view opportunities to grow different business models, which request, of course, Some part of our net profit.
So can I follow-up?
Just quickly on the regulatory headwinds. Have they been confirmed versus what they were last What have there been any changes apart from day 1 that you booked?
For 2021, we had said As far as stream is concerned, 30 basis points and we remain at that level. So pretty much we think it's accounted for now. And we had also pre announced CRR2 at the end of Quick Fix. So I would say for 2021, we are done.
So
hello. I would say customer reaction, I would say, 1st of all, overall and then maybe a little focus on equities, which and structure products and equities. Overall, I think What we have been doing and for a number of years now, specifically in the latest exercise is to make sure that we focus on the clients, on helping them and on areas where we are strong in terms of this intersection of client geography and product or service that we provide. And I think by being very consistent In executing on these principles, we have been able to not only retain the entire confidence Our clients but also increase it and to accompany them across the Sierra H1, Q2 in many The landmark transactions, supporting them both with our advisory capacities and our underwriting capacities and on the markets with our ability to be their intermediary of choice. And I think you see this in the results and you see this in a consistent way if you compare to the levels pre crisis, if you compare obviously to last year and you see this across all our businesses.
Now Specifically on the Structured Products and Equities, where the intensity of the repositioning was higher in the recent Courters. I think it's fair to say that here again, we wanted to be very strategic about the way we thought about this in terms of the client impact, in terms of the allocation of the underlying scarce results, if you will, ability to offer these structured Solutions, so we were very strategic. And I think from that perspective, our clients are always grateful for us to be for being rational in Our capacities to them, 1. And 2, we have been creating new products, innovating in the space with the balance between the risk reward for us and the value for clients, which I think is Much better. And we see this in terms of the fundraising, so to speak, in some of our new products like Evolution that I think we Spoke to you about.
And overall, it's a very good picture from a customer response perspective. Thank you. Next question.
Next question is from Mr. Omar Fall from Barclays. Please go ahead.
Hi, hello. Thanks for taking my questions. Firstly, just in international retail and financial services, Coming back to the impact of rates, do you have the sensitivity to rates For Czech Republic and Russia, please, and even BRD would be great. I think I've missed it, but I may have missed it. I can see it in KB or BRD disclosure.
Because I guess, yes, I wonder for the division as a whole, if maybe you have a Nice situation where drives the revenue growth this year and then next year you have the pickup from a kind of full year Of the rate rise benefits in CE. Then secondly, on French Retail, I just wanted to touch on the outlook for commissions. It used to be that financial commissions when you used to split the disclosure had a bit of 3rd quarter negative seasonality. I think you used to do like $200,000,000 in financial commissions and $650,000,000 for service fees. Do you think that seasonality is Exaggerated in the Q3 because of some of the market sensitive stuff?
Or do you think that with the economy reopening, the better environment, That EUR 856,000,000 of commissions is kind of a good is actually more of a trough. Thanks.
Hello, Omar. I will check with William whether we disclose such granular information. What is clear is, of course, With the interest rate happening this year, we will have the full effect next year. But William, what do we disclose? Unfortunately, we do not.
But we
do disclose at Groupe Laron. So for 10 basis points, we update you regularly on that. For 10 basis points upwards, parallel Shift, of course, it's about EUR 60,000,000 you could have in revenues Over the group in the 1st year and a bit more than 100 in the 2nd year. Let's just keep in mind to give you a perspective that the majority of that pertains to French Retail.
Sebastien, sustainable level of fees? Yes. So regarding
The fees, so very strong growth compared to Q2 2020, We've got strong momentum in financial fees, in particular in the savings, life insurance fees, usage fees and private banking fees. And also service fees, which have benefited from the week of the Trajectory after the lockdown, the lockdown period in 2020, especially in Q2 2020. That's an occasion for me to say that we are gaining market share in Savings Life Insurance, in the French market, when you look at both inflows and you compare to Public information, clearly, it shows that we are gaining market share and growth inflows were particularly important high in H1 2021 compared to H1 2020. It's plus 67%, which is obviously a big number and net inflows are significant. I mean, the growth is significant.
Having said that, we think that even if we don't again, even if we don't give some guidance for the revenues. I think that in H2, Should the sanitary context not worsen, we might expect The continuous recovery of service fees and depending on The situation in the market, financial commission, financial fees will be supported by our effort to increase the equipment weight of our clients in terms of savings products, Unitprint product also.
Thank you. That's very clear. Why do you think that just as a very Follow-up, could you just elaborate on why you think you're gaining share, particularly on the unit linked and
on the Life
That would be helpful.
Because the level of growth inflows is higher than the market. That's based on public information.
Okay. Thank you.
Thank you. Next question?
Next question is from Madame Lorraine Quares from UBS. Madam, please go ahead. Yes, hello. Thank you for taking my question. I just have one actually because a lot of them have been Answered already.
So it's a question on the restructuring of the French network. I was wondering whether you already taken a decision with regards To the different brands that are within the Credit in our network, whether you are looking for a common branding. If this brand will continue to exist, any color on that would be greatly appreciated. Thank you.
Hello, Laren. I will Leave the floor to Sebastien.
Good morning, Laurent. So we will give a very detailed Presentation in the coming months, it will include an explanation on our branding strategy, which will be consistent with the objective, which is to have a bank very well routed locally. So as we said, there won't be a unique brand for all the French market as a whole. But the detail will come in the coming months.
Thank you, Sebastien. Thank you, Laurent. Next question please.
Next question is from Mr. Stefan Stannmann from Autonomous Research. Sir, please go ahead.
Yes, good morning, everyone, and congratulations on the results. I wanted to first follow-up on the stress test results, please. The drawdowns were clearly Quite steep and your trough ratio is also not great. And I was wondering if you think that could Trigger a debate with regulators about your Pillar 2 gs buffer. And related to that, do you think it's actually That's still adequate to run with a 200 basis point buffer over MDA as your management targets.
And the second question relates to your deferred day 1 margins. You actually had A very strong addition of new business in that part of your activities, Very strong net new business that created deferred margins. And I was wondering if that reflects The economic complexity of that new business, is that rising? Or are there other reasons for this very strong increase in your Deferred margins, please, in the first half. Thank you.
Stephane, hello. What kind of figures are
you referring to exactly which business? I did not understand, catch your second question.
Yes, that refers to the deferred margins that we create for. Yes, exactly.
Yes, they want No, I mean, okay, listen, Slavier with our answer. But again, fundamentally, we'll come back to the nature of the new product. There's I think on the contrary, we have simplified the complexity of the product. So we'll try to answer your question. Can I just come to the first question?
First, the stress test is one element. There are many, which is considered by the supervisor in the Process. So I mean, we have absolutely no information on this. Can I say, Gideon, on your Question on the margin, I mean, at the end of the day, let me just highlight, we are fundamentally in the coming 2, 3 years, we're going to increase the density of risk weighted assets, everything they need for between the TRIM, between the CCR, between the Basel, etcetera? So first, a 200 basis point margin multiplied by the end game means more 1,000,000,000 of euros.
2nd, I think at the end of the day, the key question is and this will be the question for the European supervisor, How do we think about the right level of capital for a bank like Societe Generale versus U. S. Banks? I would put it as direct like this When I see the level of 42 ones of U. S.
Banks and I think I factor, as I said, the completion of all the regulatory project, which means again full confidence on the models. When they are the modeling is complex With Basel, we take even the standard levels of LGD, for example. Do you think that 200 basis points multiplied by more, as I said, is enough or not. That's the No question, but at the end of the day, this is the margin we keep, in particular factoring, of course, the capacity every year to generate more capital, new capital and good profitability. So, And good profitability.
So we will see and the supervisor will have to refine its own Position, but at this stage at least we think it's the right level.
On the reserves, so specific, right, very specific To your question, actually, our day 1 reserves were very stable. So I think I suggest maybe you can follow-up with our team Just to make sure that we're talking about the same thing. But day 1 reserves, capital markets activities were nearly flat. So that's Yes.
Just to follow-up on that, The additions to the margin were actually very high. You created almost €600,000,000 of new reserves during the period from new transactions. And then you also had amortizations against it. But the new business additions were actually 50% higher than they have been in the past on average. And I was wondering what creates this increase in new business additions.
Listen, I suggest we follow-up Specifically on this, but strategically, I can tell you that size wise, We have less structured products of the highest complexity and in nature, even more so, right? So we have even less of the most complex structures because of the shift that we accomplished. So let's figure this out because this is a little counterintuitive to me. But I can tell you in terms of the business strategy and the business execution is absolutely not the case. If anything, the complexity has drastically been reduced.
Thank you.
Thank you very much.
Thank you, Stefan. Next question?
Next question is from Mr. Qasim Handak from Deutsche Bank. Sir, please go ahead.
Yes. Thanks for taking my question. A very quick one, again, on French Retail related to restructuring costs. Does the previous guidance on restructuring costs still hold? I mean, euros 700,000,000 for French retail, of which 70% will be incurred in 2021, that's the guidance.
So up until now, only €60,000,000 have been booked related to French retail. So Just wonder if the guidance still holds in French treaty. Thank you.
Hello, Cazzim. Yes, I think so. Sebastien. Yes. So
CTA would be between, as we said, euros 700,000,000 800,000,000 euros and it will be booked in H2 2021. 70% I'm sorry, 70% will be booked.
The bulk will be booked in H2 this year.
Next question is from Madam Anke Reingen from RBC. Madam, please go ahead.
Yes, thank you very much for taking my question. The first is on provisions. I just wonder given your comments about potential write backs in 2022, Where we currently stand could be looking at a similar level of 20 to 25 basis points in 2022 as well before going To the 30%, 35% you previously indicated as more like a normalized level. And then secondly, on costs, It's probably pretty much sort of like call this a victory, but obviously your targets are based on absolute cost base, but the revenues seem to be faster, going faster than probably could have been expected. Do you still think that the absolute cost target is the right level or is the right target?
Or should we be more thinking about Cost income ratio, are you really looking if you have more higher costs because of higher revenue, She would be looking for cost savings elsewhere, just to stick to the absolute cost target. Thank you very much.
Hello, Henk. Listen, we don't give any guidance for 2022. We comment for 2021, we are, I think, giving quite a lot of precision to our guidance on the cost of risk. As we've said, in 2025, it's without writing back a significant portion of our results. So it means we don't take Gunny commented on the potential increase of default, but at the end of the day, starting from a very low level and it's not it could not be something significant.
So the idea is, And so
the idea is, of course, to ensure also the cost of risk for 2022, which would be also relatively low by keeping the buffers. 2nd, on the cost, listen, we are Set this target in absolute terms for 2023, like during a certain level of revenues that I'm putting on the market. As you know, this target of €4,500,000,000 If we were to do much more, we will Factors on variable compensation in line. But like any bank, at this stage, I think it's consistent in line with this revenue assumption to stick to this Figures for the cost. And I think you will admit that this year, we started the year seeing slight increase.
We are exactly in line Knowing that we have a good performance on the income, which means that we are really putting a lot of attention on our costs. This is a core discipline we have had now for many quarters.
Okay. Thank you very much.
Next question?
Next question is from Mr. Pierre Chedeville from CIC. Sir, please go ahead.
Yes. Good morning or afternoon, everyone. One question, A follow-up regarding cost of risk because in your previous plan, you had a target between 3540 basis points. Now we are Much less, twice less. And I was wondering if we are entering a new era in Certain sense.
Is it a new normal that could be caused by 2, I would say, Two reasons. 1st, a shift towards an American model where economic needs are financed by the markets more than by the banks, which was a characteristic of European Banking Model, but Which is evolving regarding the regulation. But also, maybe the fact that European banks and maybe French banks in particular are too cautious now and do not, I would They properly do their job because a bank that is not taking any risk or too few risk, in my view, is not doing its job As a mutualization actor of economic risk. So what is your view on that? And my second question will be very quick.
Could you update us regarding the penetration rate of P&C and Protection in your French network? Thank you.
Hello, Yes, I believe Sebastien answering your second question on GMC. Your first one It's a complex one to answer in just a few seconds. But can I say, I'm not sure actually that there's really Such a change, 1st on the market because in Europe, at least the financing has remained a bank finance Largely, we see the development of non banking finance, of course? But still, compared with at least the initial plan of the Capital Markets Union, It is still a fundamental year of banking market. And if I may not taking a risk when I look at what we did last year, Actually, the low cost of risk is the direct results of a very efficient cooperation between the Public sector, the central banks and the banks to provide effectively support subsidies when certain sectors were closed For administrative purposes, to save the lives of citizens and the liquidity, I I think we can be proud as bankers to have done the job.
And I must say, it's a contrary which would I think would have been a problem Find many defaults because it could have meant, in my view, that we would have failed and at least protecting as many capacity productions possible, While, of course, going forward, the best companies will make the difference with the ones which might have been weakened for different reasons, and that's It's normal. 2nd, I think that the banks are already I don't buy the idea that we should take more risk. At least the supervisor is there also to ensure we don't take too much risk. We are on the mortgage In France, we have a supervisor who committed the civil definition, which stays, be careful. So we align with the rules.
We cannot we don't do say things, but we are there to support the clients, whether it's corporates and household. It's across the board. It's true also In Africa, it's been in Russia. I don't think so. I think we are in an extraordinary situation where There were very strong supports to the economies.
Markets played their role. Private equity firms play their role also Solvers, they put the money when needed. And it happened that with very conservative provisioning in 2020, Not just on S1, S2, but also on S3, ahead of the crisis, we are in a situation of An extraordinary low cost of risk. I think we are doing our job. And I don't hear any stakeholder, I must say, which For criticizing the banking sector, at least in France, for not having been there with our clients and finding solutions.
So Listen, again, we think there will be a progress in normalization and coming back to high levels and close to 0. But again, I think it's at least a part of our model to originate credit soundly. We will pursue this discussion if you wish one day We have more time. Now P and C and Sebastien.
Thank you. Yes. Pierre, good morning. So your question is about So equipment, weight and protection. So for personal protection, it's 22.5% And Property and Casualty, it's 10% with an improvement slight improvement compared Q 2019.
But as you know and as I already said, we are not where we want to be. So That's potentially more revenues and something which can fuel the growth of the French networks If we manage and that's the objective to improve more significantly the equipment rate. One positive signal again in Q2, the number of contracts is up plus 6 point 4% compared to Q2 2020. But clearly, insurance is one of the key focuses for French Retail Business.
Thank you. Next question? Next
question is from Mr. Kiri Vijayarajah from HSBC. Sir, please go ahead.
Yes. Good morning, good afternoon, everyone. A couple of questions on the cost side for me. Previously, you'd guided that 2020 was supposed to be the peak year for remediation Costs. So has that been falling away as expected?
Just some quantification on how much that's been helping your cost numbers This year, you don't really mention it on your cost waterfall on Slide 8. So maybe it's not material. So just some quantification there. And then still on costs, but really on the French retail merger. Just wondering to what extent the pandemic has altered your view on What the optimum size of the combined network should be?
I know you're going to give us an update later in the year. So I just wondered if you're hinting that there's been some rethinking going on that you need to update us about? So just some sort of clarification on your thinking on the optimum size of the retail network in France post pandemic. Thank you.
Hello, Thierry. I will leave William commenting on your first question and then Sebastien on your question on the retail network.
Good morning, Thierry. Thanks for the question because it allows me to clarify what seems to be a misunderstanding. So we I also think we said that we had a peak in 2020 rather As we had a peak for 2020 2021, so we keep a high level Between €150,000,000 €200,000,000 booked in the corporate center, plus there are obviously other remediation costs pertaining to key projects elsewhere. And the 1st year where we do expect some decrease is 2022 and then gradually depending upon what we're talking about In terms of remediation, 23, 24. So certainly no help from that.
I would love to say that. To the contrary, that's Doctor. Keith?
Yes. No, we haven't changed What we want to do, thanks to the merger, in terms of cost for We pay networks and our objective hasn't changed. If I take an example, a number of branches will be reduced by 30%, three-zero, to have with the objective to have 1500 Branch is at the end of plan 2025. And when we decided the merger, we had in mind All the changes from a customer perspective, all the changes which will take place in the coming years, impacting a number of branches. And the pandemic, the health crisis have made these changes even more relevant.
So I confirm the objective in terms of cost and in terms So a number of branches at the end of the plan.
Thank you. Next question?
We have no other questions. Back to you for the conclusion.
Okay. Listen, well, thank you so much for your time and your attention. For those of you who might take some holidays, happy summer break. And of course, see you soon and keep safe. Thank you very much.
Bye bye.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.