Yeah, why not? The film, not myself, the film. Good morning, everyone. Welcome. I love this film. You're hearing the voices of our colleagues from around the world. You certainly recognize our heavy French accent and many others. But I know that you also heard our voice: one of passion for our clients, and one of passion for our work, which is, at its core, fulfilling the uplifting mission of supporting and catalyzing the potential of others, our clients' potential; their ideas, their projects, the eagerness to grow that lies in each one of them, and in every company that was ever created. Being the ones that make the genius, the courage, the vision of our clients come to light and impact the world. This job must be done. It is needed.
It is one of great responsibility, which we welcome, and it is one that gives us meaning and a sense of purpose every day. A job which we could not perform without our shareholders, the ones who founded us 160 years ago, and the ones who support us today. And for this support, we are not only profoundly grateful, but also we feel a great deal of accountability for it. So dear investors, analysts, partners, and colleagues, it is a great pleasure to welcome you today in our London office and online.
Our CFO, Claire Dumas, and I will be presenting today, but I welcome my partners, the Deputy CEOs of Société Générale, Pierre Palmieri, Philippe Aymerich, the members of our Executive Committee, as well as Tim Albertsen, the CEO of ALD, and Benoit Grisoni, the CEO of Boursorama, who join us today. It is an important meeting, one where we get to present our strategy, one where you get to ask us your questions directly. So let's begin. We ambition for decades to come to be a leading bank, rock solid and sustainable. We have strengths, undeniable and distinct. We need change, undeniably. We take decisions. We have catalysts that will support our course. Our goal is to deliver consistently a sustainable value creation to our shareholders and all our stakeholders.
And to deliver, we must be first rock solid. More capital, less costs, best-in-class risk management, strong culture. Second, simplify. Fewer businesses, less cost, less dispersion, more synergies, less tail risks. Third, high performance. Compete where we can win, not where we can merely exist. Tightly manage scarce resources as a principle, not as an option. And finally, sustainable. Deliver consistent earnings with low performance volatility. Be a leader in helping our clients and the world solve the radical ESG challenges we are facing as a matter of survival. Where do we start? Everything starts with our clients. We have 25 million clients around the world. We have been building these relationships, long-term relationships, for 160 years, and we are very good at it. Because clients have trusted us through decades, we have built a EUR 27 billion resilient revenue base.
We have an exceptional team, with a level of expertise and professionalism recognized around the world. In many instances, a go-to bank. A team with a unique level of commitment to our clients and to our company. A company where world-leading franchises were imagined and built. One of the few places where the world derivatives markets were born, project finance or renewable financing, or even the dedicated ESG equity research teams 15 years ago. A company which built a leading online bank for 5 million real banking clients off a phone and a fax in one of the most competitive banking markets in the world. A company which successfully restructured and developed leading banks in new countries. A company which nurtured, step by step, the most competitive fleet leasing business in the world and grew it into a world leader. These are facts you can check. Can we do better?
Of course. We are highly competitive, consistently extracting a high gross margin from our business, defined as NBI over RWA. This means that on a relative basis, we create more value than average from each unit of capital we employ in our value creation process. How are we able to achieve this? Because of the unique combination of strengths which I already described. Conversely, we must recognize that our performance, our net value creation, sometimes falls short of expectations. We produce high margins, but with costs that are too high because of complexity. Our earnings are volatile because of idiosyncratic events, and all the above impedes capital generation. These features of our business model negatively affect our valuation. Whether we like it or not does not matter. Despite a roughly 50% increase in our tangible book value since 2010, our share price decreased by over 50%....
Our valuation carries a significant discount to the book value. So this will not come as a surprise to you. We believe that extracting high gross margin is important, growing and innovating is important, but consistently delivering a sustainable profitability is what matters the most. Net value creation is our number one priority, and not just for the sake of it, but because this is the ultimate composite measure of a company's performance. So how are we going to do this? Our strategy, in the end, is one word: sustainability. For our shareholders and ourselves, we want to deliver sustainable profitability. For the world, we want to contribute as much as possible to the sustainable development goals. Our roadmap is simple: strength and performance. Strength is a good stewardship of capital, from setting proper capital management levels to running a tight ship in terms of capital allocation.
Strength is an optimized business portfolio with low return dispersion, with a good risk profile. Strength is a low breakeven point and high operating leverage, sources of superior profitability and resilience. Strength is best-in-class risk management, and on these strong foundations, high-performance businesses can thrive. Performance is focusing our expertise and resources on what we do best, what we can excel at. Performance is leadership in ESG because there is no future for unsustainable businesses, and doing our part is an ethical imperative, and helping our clients is a defining business opportunity. Performance is not a given. It's a culture, and it requires an acute sense of accountability from all.
With this roadmap, we will convert high gross margin into sustainable profitability, striking a better balance at the heart of what we do, and we set ourselves the following targets: a CET1 ratio at 13% in 2026, a cost-income ratio below 60% in 2026, a ROTE within a range of 9%-10% in 2026, a distribution payout between 40%-50% from 2023 to 2026, a revenues CAGR between 0%-2% between 2022 and 2026, the ambition to be an employer of choice for our teams, present and future, and the ambition to maximize our positive impact on society. Everything is here. The underlying equation is one of balance between often conflicting priorities in an uncertain world. It is also driven by a deep sense of accountability, recognizing that promises are not what matters.
Delivering is what matters. The capital base is the backbone of banking, and it is, in our view, essential to operate with a level of capital which enhances the flexibility and competitiveness of our business and financial model. A core strategic assumption, we want to have is a rock-solid balance sheet, and we target a level of 13% for our CET1 ratio. Why 13%? We spent a significant amount of time listening to shareholders and reflecting on this key parameter of the overall strategic equation for a bank. We decided to target 13% based on 200 basis points over the MDA, which means a CET1 of roughly 12%, post Basel IV, the minimum level we intend to always respect. An additional management buffer to provide enhanced leeway to operate our business responsibly and with flexibility.
We are currently at 13, and we keep this target post Basel IV. It will put us in line with the strongest Eurozone G-SIB targets. It means taking the capital debate off the table. It means an enhanced ability to absorb any exogenous shock, an ability to seize business opportunities through the market cycles, and ultimately, it means delivering a steady total shareholder return. We are taking decisions to meet this target through the combination of the following actions. First, proactively limit the organic RWA growth. Second, improve organic capital generation through cost efficiency. Third, streamline the business portfolio and enhance capital management through distribution of assets and risk transfer transactions. Finally, define a responsible distribution policy. We are fundamentally changing our approach to growth. We do not grow out of our challenges. We address them. We will capture growth with our businesses, but differently.
Our growth will rely on discipline. Over this cycle, the organic RWA growth will be limited to less than 1% per year on average from 2024 to 2026. Only ALD and Boursorama will benefit from incremental RWA allocation.... All other businesses will grow only as they finance their own growth through capital optimization and the improvement of their gross margins. Note that capital allocation to market activities, organic allocation, will remain stable. We will grow differently by making choices and focusing our investments, by increasing the advisory and fee-driven components in our businesses. We will benefit from positive tailwinds in terms of NII from 2024 onwards. We will leverage our businesses through strategic partnerships, which will help achieve meaningful growth with a lower RWA intensity.
Overall, we project our revenues to grow annually between 0% and 2% on average between 2022 and 2026. As part of our new strategic equation, we have framed a prudent distribution policy consistent with our strategic goals for this cycle. Over the period from 2023 to 2026, we expect a payout ratio range between 40% and 50%. To ensure clarity and consistency, from now on, the payout ratio will be based on reported net income. Within the 40%-50% range, we aim at a balance between cash dividend and share buybacks from 2024 onwards. Share buybacks, because it makes financial sense considering our current valuation. Cash dividend, because they are important for some of our shareholders.
Once our CET1 target is reached, post Basel IV, our intention is to use any excess capital in the best interest of shareholders. So we run a highly diversified, large-scope business portfolio with some degrees of complexity. We will simplify it and increase its consistency by applying strict portfolio management criteria, so that management attention is focused, the portfolio has the right risk profile, diversification comes with synergies, and the appropriate level of profitability delivered on a regular basis. Business portfolio management is critical, as it directly impacts group capital management, the group cost to income, and the group risk profile. Operational efficiency. We, and by we, I mean the entire senior management team, are fully committed to structurally improve the Group's operating leverage. Our objective is to reach a cost-to-income ratio below 60% in 2026, with a linear progress from 2024 onwards.
We are a high-cost producer, and lowering our production cost is critical to enhance net value creation. Operational efficiency is a matter of processes and spend, but it is also a matter of mindset. So we are shifting our mindset so that seeking efficiency guides us in all our actions with clear targets and incentive mechanisms set both at business and support function levels, responsibly. It is important indeed, to stress that we will not reduce costs at the expense of our core businesses. We will not shrink out of our problems either, nor our controls quality. It will be done at the expense of significant structural inefficiencies, some of them stemming from the complexity of our business portfolio, which we'll address at the same time. Efficiency is also a matter of culture.
From now on, businesses will have to bear their own transformation charges and to self-finance their costs growth. As part of the efficiency gains, part of them will be reinvested in innovation and business initiatives supporting profitable growth. Overall, we target gross cost savings of EUR 1.7 billion in 2026 compared to 2022. This ambition combines existing projects with new efficiency initiatives, which represent approximately 40% or EUR 700 million. This cost reduction plan relies on three pillars. First, the delivery on all existing efficiency projects, from the French networks merger and the integration of LeasePlan by ALD, to all the initiatives already underway in GBIS and international retail banking. Second, the improvement of IT efficiency through a more disciplined platform strategy, more structured and systematic digitalization, and automation, which I will address later.
Third, we will shape a leaner organization to enhance efficiency in the context of the overall simplification of the portfolio. IT and digital are both important cost items and performance catalysts from both a revenue and a cost perspective. Through our growth-focused, fast-paced innovation, we developed wide-ranging product and services offers across multiple customer segments, businesses, and geographies. We offer well-regarded digital capabilities through Boursorama or SG Markets. However, our diversified business mix and largely decentralized operating model led to a complex architecture, to a fragmented infrastructure, and to a wide library of applications. This reality is one of reduced efficiency levels, less standardization and mutualization opportunities, and ultimately, one where we do not benefit enough from our scale. With a EUR 4.7 billion cash out spent in 2022, our technology is costly relative to its size and when compared to peers.
To address these inefficiencies, we target EUR 600 million of gross IT cost savings in 2026 versus 2022, and to achieve this reduction, we will converge towards a platform model. Platform model relies on a common technological foundation and the sharing of standardized tools and services across the organization's IT. And once again, streamlining the portfolio of businesses is a key catalyst for IT efficiency. At the same time, we continue to invest constantly in cybersecurity, cloud infrastructure, and data management solutions. Risk management is a fundamental driver of net value creation and therefore of performance. We have managed our businesses with strong risk management principles and deep risk expertise. We are determined to maintain the highest standards throughout the group. In terms of credit risk management, we have a strong track record in reducing our cost of risk, one of the best.
We had an average cost of risk of 30 basis points between 2018 and 2022, compared to around 50 basis points for European peers, and we have a total of EUR 3.7 billion in prudent S1 and S2 provisions. This performance relies on a strategic approach to diversification, on expertise, decades of history, and experience in our sectors, geographies, and client segments of choice. And our risk strategy also benefited from a proactive portfolio management. Similarly, market risk management is a key driver of value creation within wholesale activities. We have successfully de-risked, both quantitatively and qualitatively, our market activities since the 2020 market dislocation. As you can see, we shifted the paradigm in our consumption of market stress test since 2020. It has significantly decreased as we focus relentlessly on client margins, product risk reward, and proactive risk management overall.
We will maintain best-in-class risk management within a stable risk appetite. We will maintain a prudent origination policy across all regions and all businesses. We will ensure that our exposures remain well-diversified and that concentration risk is limited. We will maintain our appetite for market risk at current levels. We will maintain a constant and strict monitoring of tail risk, and throughout the group, expand specific processes which we developed in GBIS over the last few years. Overall, we expect the cost of risk to remain in a range between 25 and 30 basis points over the 2024-2026 period. Of course, risk management framework goes well beyond credit and market risk. ESG risks, for instance, are specifically considered in a holistic approach across the group. We assess the impact of ESG risks on our client risk profile, such as transition and physical risks.
We identify the impact of our own activities on the environment, society, and human rights, and frame our actions with strict sectorial policies. Governance, compliance, and conduct are fundamental in the culture of our company, and we are constantly seeking to improve even further in these matters. On strong foundations, high-performance businesses thrive. Our collective future is one of transformational change, which always carries risks and volatility. Banks are cogs in the economy where risks are underwritten, intermediated, and managed, and change is always both a risk and an opportunity. We believe that change will further accelerate in the next decade. Geopolitical polarization, energy transition acceleration, behavioral and social changes induced by the energy transition and new technologies with the ultimately disruptive potential of AI. In this context, our clients need us.
They need more and more expert advice and ad hoc solutions, and we are very good at it. We'll focus further on what we are the best at. Not everything to everyone, everywhere, with an average value proposition, but a combination of our best with the best of select partners that we will anchor in our platform to deliver the best to our clients. This best-of-breed partnership approach, through an open architectural mindset, wherever it makes sense across the entire company, will prove, will prove to be a unique business strength and opportunity. Our clients will be best served, and we will increase the value per client that we generate from our client relationships, because client satisfaction is what matters most in the long run and what drives loyalty, fee generation, and profitability. Change is bringing business opportunities.
Over the next decade, the world needs a fast but orderly energy transition and a shift to sustainable development. EUR 300 trillion of investment needs a radical shift to electric vehicles, a unique opportunity for our investment bank, our retail bank, and for ALD. The world needs infrastructure investment across a wide scope of assets, from transportation and energy to healthcare, worth another EUR 100 trillion. A unique opportunity for infrastructure advisory and financing franchise, and for our partnership with Brookfield. The world needs trusted and expert providers of investment advice and investment products as populations age and AUM grow. A unique opportunity for our markets business, for our Bernstein JV, and for our Brookfield partnership, for that matter. The world needs responsible digital solutions, which will ultimately be the norm. A secular trend, which supports Boursorama, our digital sales in private banking, and our-...
R&D leadership in digital assets developed through SG Forge. Change is bringing business opportunities. Our business mix is well-balanced and diversified across our three pillars. All our core franchises, the ones we excel at, have strong prospects for growth and an ability to extract synergies as they address the opportunities their markets offer. Equally, they have all opportunities to increase their efficiency. I want to stress this point. We will relentlessly seek to increase the value stemming from the business portfolio by ensuring systematic offer integration where it makes sense for our clients. We will, for instance, increase cross-selling within the bank insurance model in France as we organize a closer cooperation between the retail banking and the insurance divisions. And we will similarly optimize our mobility ecosystem so that clients benefit from an integrated offer, combining fleet management and leasing with car finance whenever appropriate.
I will not comment on this slide as I touched upon the open architecture and best-of-breed partnership approach that we will implement to scale up our value proposition to clients. Let's rather dig a little more into our businesses, starting with French Retail. It is important to have in mind our unique setup with two leading banks in France that fits well the specific market and behavioral changes. We have, on the one hand, a well-established bank with brands strongly positioned with wealthy, affluent professionals and corporate clients that generate superior value. On the other hand, we have the undisputed leader in French online banking, with very strong growth, which captured, for instance, over 20% of total client acquisition in the French market in 2022. 5 million clients, a consistent number one in quality with the highest NPS.
This is how we capture both the value and growth components of this market. In French Retail overall, our key long-term strategic objective is to achieve, over time, the cross-convergence of our strengths. While remaining the benchmark bank for high-value clients who require a specific setup and a specific level of service, Société Générale France must continue to decrease the cost to serve and optimize further its organization, its product offer, and its operations. It is a shift in paradigm which requires a longer effort. We took a first step with the merger. It was a transformational step, but a lot remains to be done. In the meantime, while maintaining its leading position in digital, client acquisition, and best-in-class operating model, Boursorama must further increase the monetization of its growing client base, increase its revenue per client in a very meaningful way.
For Boursorama, it will be equally challenging as the efficiency efforts for the Société Générale networks, and equally defining for its future as we seek to grow its net value creation. Combining the strengths of our two banks in France, we target a client base of more than 17 million customers and a cost to income below 60% in 2026. Boursorama reached all its targets set in 2020, well ahead of plan, and posted in Q2 2023, a quarterly net income close to EUR 50 million. Its potential for profitability is very significant, thanks to its unique combination between growth capacity and a highly scalable model. Because we care about long-term value creation, we have decided to continue to invest in Boursorama in the coming three years.
It is simply too early to stop Boursorama in its client acquisition momentum while the digital market is still being formed. Boursorama is uniquely positioned to achieve an overwhelming level of leadership in this market of the future, and it is our responsibility to extract the whole value creation capacity potential it carries. As it delivers this plan, reaching over 8 million clients by 2026, Boursorama will benefit from the rate environment and will be tasked with selling additional products to its clients at a pace which is consistent vintage by vintage, with outstanding by clients doubling in year three compared with year one , and even tripling in year five. Of course, we will take full advantage of the strong operating leverage of the business model.
We will invest roughly EUR 150 million in terms of gross, negative gross operating income, if you will, over the 2023-2025 period to reach the objective of more than 8 million clients by the end of 2026. But let's be clear, we have no intention of increasing the number of clients for the sake of it. This wouldn't make any sense, and we are not a startup. We target, at the same time, a net income above EUR 300 million in 2026. Moving on to the French network, despite its strong position on high value market segments, we must admit that the profitability generated recently is not satisfactory and far from the level we target. Therefore, beyond the increased contribution from the NII tailwinds, which we will discuss in a few moments...
The sustainable improvement in our French networks' profitability requires us to be significantly more efficient. The timely deployment of our new model, post-merger is key, but it must be coupled with strict cost management, with a view to lowering the cost to serve beyond the direct merger benefits. And strengthening the value proposition across all client segments, increasing commercial intensity, and the level of gross margin will also be part of the profitability improvement equation. We expect that, bringing together the networks and insurance activities under the same management, which they were not, will enhance our bank insurance model and help fill the gap we carry in non-life products. In financial terms, we aim to reduce the cost-to-income ratio to below 60% in 2026. Moving on to GBIS. Our GBIS business is strong.
Over 7,000 clients, balanced between corporate and financial institutions, a high-value client base with low churn, generating stable and resilient revenues. You know the reasons, long-term relationships based on trust and on the provision of expert advice and solutions. GBIS is also at the heart of our diversified business model as it stands at the crossroad of the core group synergies, together with French Retail, with EUR billions in revenues generated within the group directly or through synergies with GBIS. Over the last three years, we have built a solid track record, with all the targets communicated in 2021 already largely exceeded ahead of schedule. So simply put, we are staying true to the philosophy of the strategy we set out in 2021. Our primary objective remains the same, and it is actually twofold.
On the one hand, strengthen our position as a Tier 1 European wholesale bank and as the trusted partner of choice for our clients. This is the bedrock of our performance to maintain a best-in-class gross margin. On the other hand, we are committed to ensure a sustainable level of profitability with lower volatility than in the past cycles. To continue achieving this, especially in the context of normalizing market conditions, at least for now, hence the limited growth assumptions, we need to go further in improving operating leverage while investing wisely in technology, in developing a more capital-light model.
Overall, we target a cost-to-income ratio below 65% in 2026, based on a +1% to +2% CAGR revenue within F&A from 2022 to 2026, 2022 being a high point, and a revenue range between EUR 4.9 billion and EUR 5.5 billion for global markets. With normalizing market conditions, no incremental RWA allocation, meeting all these targets is no easy task, without a doubt. We also need to scale up our value proposition to clients at the same time, and this will be done with focus and discipline. First, by shifting profoundly our approach to capital management. We will move further away from a culture of balance sheet management optimization to a truly distribution-driven approach. We will lower the RWA intensity per unit of revenue through our distribution capabilities, our investor reach, and catalyzed by strategic partnerships like the one with Brookfield.
Similarly, we will continue to step up our advisory capabilities, focus on fee generation more than on NII, and we will maximize all the revenue and client potential stemming from our Bernstein JV. In simple terms, more advisory, more fees, less capital intensity. Excel at what we do. We have well-known, well-known strengths, and we will focus on being even better where we are already strong. Moving from the best equity derivatives house to one of the best equity house in the world. Strengthening our FICC businesses through an even stronger focus on corporate clients.
Nurturing our reach into our sectors of choice with a leading ESG franchise that is not transactional, but profoundly strategic, rooted in our sector expertise and our deep understanding of underlying technology challenges across entire value chains from, for instance, the mining of lithium in emerging countries to the charging infrastructure in Europe and vehicle batteries. Growing our financial sponsors' franchise, not across every product, but for instance, through our excellence in the private credit chain, once again, at a specific spot where we can lead. We will continue to invest in transaction banking, a high-performing asset-light business, which benefits from the higher rate environment, with a specific objective here to increase the diversification of revenue towards fee businesses. We will also build a more integrated offer across the group to better address our clients' need for simplicity.
More advisory capabilities, more expertise, more bespoke scale capital for clients, better transaction banking solutions are what clients need, and optimizing the value creation for our clients will help us preserve and expand margins. Turning now to international retail banking. Following the refocusing carried out over the last decade, the group is now present in Czech Republic and Romania with two subsidiaries.... KB and BRD, which hold strong positions in the top three in each country. In addition, considering the four ongoing disposals, we are also present in 13 different countries on the African continent and overseas. Overall, we currently serve 9 million clients, equally split between corporate and retail clients, although Europe is more retail-oriented, whereas Africa is focusing primarily on corporate business.
In 2022, the net income generated by our international banks amounted to EUR 700 million, almost two-thirds of which in Europe, and the average ROE reached 17%, including 27% in the Czech Republic, notably thanks to a very favorable rate environment, 19% in Romania, and 12% on average in Africa. It is a meaningful combination of national champions, which the group has developed for decades and optimized successfully. Going forward, our strategic objective will be simple and clear: ensure that our international presence creates value for the group and its shareholders, with returns from subsidiaries that are sustainably higher than their cost of equity, which differs from country to country, not least because of geopolitical factors.
Indeed, even though stable, notable improvements have been made in terms of profitability over the last quarters, the level of profitability is still not at target, particularly in Africa, and unfortunately, does not yet cover, in our view, the implicit cost of equity. We want a compact and efficient setup that delivers a cost-to-income below 55% in 2026 and an ROE consistently above the cost of equity. We will take all the necessary steps to achieve this strategic objective without any taboos, digitalization and process streamlining, relevant mutualizations, and disposals wherever we could conclude that we are not the right long-term owner of a given business. We recently announced the sale of four African subsidiaries, as we intend to focus on leading franchises with critical size and which are highly synergetic with the group.
It should be noted that in the regions where we will continue to operate, we want to offer the best client experience, particularly in Europe, with the digital transformation underway. Similarly, as with the group's other businesses, ESG will be a cornerstone of our approach as we intend to have leading positions in all our geographies in this field. Finally, and it is critical, ensuring strict compliance with all applicable rules, regulations, and business practices, as well as high standards in terms of risk management, will be a constant imperative in the management of our international subsidiaries and key in performance assessment. Moving on to the new mobility and leasing solutions activities. We have here with ALD, another very differentiating asset with, like Boursorama, promising prospects in terms of long-term profitability.
With the integration of LeasePlan, ALD became the world leader in fleet management and a leading global player in sustainable mobility. A leader which is twice the size of the second player in this market. Additionally, these activities also integrate our consumer finance activities, which are the third largest car finance specialist in Europe. Closer cooperation between these businesses, ALD, Equipment Finance, will open interesting prospects for synergies, particularly in the automotive sector, key to some customers and partners who seek integrated offerings spanning from leasing to traditional consumer car finance. Within this pillar, our first objective will be to ensure timely and efficient integration of LeasePlan, while making sure that the business activity continues to grow.
Additionally, we will strengthen the synergies with the other businesses, and like within the rest of the group, we will pay attention to costs to reach a cost-to-income below 55% in 2026 at the pillar level. With ALD, we are building a leader in mobility. The industry is evolving very fast. We see rising environmental awareness, an increasing shift from ownership to usership in terms of behaviors, changes in urban mobility, all create high growth opportunities which require not only financial strength and agility. They require a significant and distributed service infrastructure, lean and operated flawlessly. ALD has it, and is therefore very well positioned to address these changes and these new opportunities.
Indeed, through ALD's expertise, we want to capture growth opportunities, then, thanks to an integrated and holistic offer to clients, and we target a 6% CAGR in earning assets between 2023 and 2026. We also aim to be the key partner for our clients to support their energy transition by increasing the delivery of electric vehicles. We target 50% in EVs in new contracts in 2026. And finally, we believe ALD is ideally positioned to lead the digital transformation of mobility, and we aim at creating a fully digital business model in mobility services, which will also contribute to further improving efficiency. ALD targets 52% cost-to-income ratio in 2026, excluding used car sales. From the group perspective, ALD is a great story.
Meaningful, long-term, sustainable growth prospects, ability to meaningfully contribute to the energy transition, strong digital position at the heart of a key human need, mobility, which will offer opportunities of an expansion into B2C businesses down the road, diversification and strong risk profile, best in class and accretive cost to income, and an accretive ROE versus the group average. A good investment and the right majority owner as ALD became a regulated financial holding company, one that addresses our core corporate client segment. With that, I leave the floor to Claire, so she can walk you through the targets in detail.
Thank you, Slawomir, and good morning to all. I will provide you, over the next few minutes, with deeper insight into the main financial targets laid out by Slawomir, the underlying assumptions that underpin the financial trajectory and its various building blocks. There are six main financial targets at group level for the next three years, which I'll summarize on this slide. First of all, the strengthening of the CET1 ratio to 13% in 2026 post Basel IV, which is a strong commitment made by the group at the core of our plan. Operational efficiency is also at the heart of this new strategic plan. It will concern all the group's business lines and support functions.
We target, at group level, a cost-to-income ratio below 60% in 2026, which mainly relies on cost optimization measures, as we have prudent revenue assumptions, with an average annual growth between 0% and 2% over 2022-2026. In terms of risk, to maintain a prudent approach in our projection and based on a continuous cautious risk management, we expect the cost of risk to evolve in a range between 25-30 basis points from 2024-2026. All of the above will enable the group to deliver a return on tangible equity between 9% and 10% in 2026, based on the 13% Core Tier 1 level. Lastly, our objective is to distribute between 40% and 50% of the reported net income after deduction of interest on deeply and undated subordinated loans, restated from the non-cash items, which do not impact the Core Tier 1 .
Before commenting the new financial targets, let's delve into the key macroeconomic assumptions. Our central macroeconomic scenario is based on a soft landing assumption over the 2023 to 2026 horizon, with inflation progressively easing to more normal levels as of 2024. In detail, our scenario is after a prolonged period of slow speed growth, annual growth rates are expected to remain positive in the coming years, within a range of around 0.5%-2% maximum from 2023 to 2026, both in Europe and in the US. We believe that core inflation will ease, but the return to target will be slow. After the peak of 2022 and 2023, it will be back below 3% by 2024.
Constantly, with the GDP and inflation assumptions, we expect short-term rates to start decreasing in 2024 and stabilizing around 2% for three-month Euribor and six-month Euribor until 2026. Compared to market and ECB expectations, we can consider these assumptions as prudent, in particular on the GDP growth, that the ECB projects at 1.5% in 2025 versus 1% for SG assumptions in Europe. But we think that it is best, in this still uncertain environment, to keep a sense of conservatism. As part of our ongoing commitment to our accountability, I will now share... Can you hear me properly? Yeah?
Yes.
Okay. As part of our ongoing commitment to our accountability, I will now share how our organization is adapting and enhancing our financial reporting. We have set strict and clear principles. First of all, regarding transformation costs, we will, of course, make sure to contain them to a strict minimum and closely monitor them. But most of all, they will now be borne directly by the businesses and not anymore in the corporate center. We consider that this allows for a better accountability and representation of the intrinsic business performance. Secondly, and consistently with the increase in our capital target, we will change the weight of normative capital allocated to businesses from 11%-12%, to better reflect the economic capital cost of our businesses. Also, the group's performance will be assessed through the reporting view as a norm, instead of underlying view previously.
Lastly, business reporting will change to better reflect the info synergies. Insurance will be integrated within French Retail, and Consumer Finance will be brought into the mobility and leasing services activity. To conclude on this topic, we will have, by the end of 2023, financial impacts regarding the valuation of non-cash items, which have no impact on distribution, and there are limited impact on the Core Tier 1. The first one is a goodwill impairment of the African and Equipment Finance activities for a total amount of around EUR 340 million, to be accounted for in Q3, as a direct consequence of the increase in the weight of normative capital allocated to businesses from 11%-12%. The second one is a prudent provision of 2023 deferred tax assets for around EUR 217 million in the context of this transition year.
In summary, we are actively working to better reflect the businesses and group performance and have transparent, accessible, and informative disclosures. Moving on to capital. We target a phased-in Tier 1 ratio at 13% in 2026, representing a strong buffer over MDA to increase flexibility and competitiveness. To reach these targets, starting with a 13.1% Core Tier 1 ratio at the end of June 2023, the building blocks are clear and simple to understand, as illustrated on our presentation. Of course, the capital generated by our net income increase after deduction of the distribution component, will have a positive impact on the Core Tier 1 ratio and the capital generation over the period. In line with a selective strategic approach in terms of capital allocation, the impact of the growth in organic RWA will be limited.
We are now expecting the impact of Basel IV to be around 85 basis points from January 2025 to end 2026. This impact is lower than our previous forecast, mainly due to refinement of the calculation assumptions, which have been made in line with this new strategic plan. By the end of the year, the regulatory topics should have an impact of 50 basis points instead of 30 basis points previously, based on a prudent best estimate. M&A and capital management measures, as Slawomir mentioned earlier, such as securitizations, group-wide asset distribution, or portfolio management, partially offset by other regulatory impacts, will result in a Core Tier 1 ratio at or above 13% in 2026. Over the period, we target the phased-in Core Tier 1 ratio to be around 13% each year-end, starting in 2025, with a buffer over MDA above 200 basis points.
By the time of Basel IV implementation, early 2025, the Core Tier 1 ratio is expected to be above 12%. As outlined by Slawomir, the group will be highly committed to improving operational efficiency. It will mainly be driven by a cost reduction across the group, as we have prudent annual revenues growth assumptions between 0% and 2% on average from 2022 to 2026. In more details, in the French retail banking, revenues will benefit from tailwinds in the net interest margin, fee generation due to the commercial intensity, and of course, the acceleration on Boursorama. Regarding GBIS, global markets revenues are assumed within a range between EUR 4.9 billion and EUR 5.5 billion for the cycle, and financing and advisory annual revenue growth will be comprised between 1% and 2% in average between 2022 and 2026.
Finally, our mobility and leasing services earning assets are expected to grow by 6% in 2026 versus 2023, supporting revenues growth. Let's have a look at French retail NII projections. As already guided, we expect the net interest margin of French retail to come back to 20-11 in 2024, and slightly and gradually increase. Note that this projection is based on assumptions consistent with our current economic scenario. The top left graph reflects the key drivers of our NIM going forward. Commercial margin is set to steadily increase in next couple of years as margin on deposits improves. As you can see, it stabilizes in the back-end years of the plan as a consequence of the economic scenario. ALM margin is set to increase on the back of the amortization of the net interest margin short-term hedges.
The bottom left chart provides you with a focus on the hedging swaps portfolio. As you can see, a short-term derivatives portfolio hedges the net interest margin. These hedges were put in place in 2021 and until first part of 2022 in a different rates environment. With a sharp increase in rates, this portfolio delivers negative ALM revenues, offsetting the gains on deposits, delaying positive impact of raising rates until 2024. Indeed, these derivatives will mature gradually until mid-2024. The rest of the portfolio hedges the balance sheet. Finally, the sensitivity of the NII to a 10 basis points rates increase stands at +EUR 28 million in year one, and EUR 52 million in year two, at the end of August, at constant balance sheet. Moving on to operating leverage, let's have a look at the cost-to-income ratio evolution from 2022 to 2026.
The group cost-income ratio is expected to be below 60% in 2026, compared to 66% in 2022. Let me remind you that 2022 was an outstanding year in terms of revenue generation. Apart from the outside factor of the end of the contribution to the single resolution fund, the improvement of the operating leverage will mainly result from a strict cost discipline and execution of our various action plans. Indeed, we have taken prudent annual revenues growth assumptions between 0% and 2% on average in 2022 to 2026, which is thus not the main driver for the expected improvement in operating leverage. As highlighted previously, the group will resolutely manage downwards its cost base by executing well-identified saving plans for a gross amount of EUR 1.7 billion. This will improve total cost-income ratio by around 600 basis points.
The main savings plan will come from the merger of the French networks, the synergies linked to the integration of LeasePlan by ALD, and the various ongoing and new initiatives launched at businesses and central functions level. IT efficiency will also contribute to a large extent, as we expect a gross reduction by EUR 600 million for IT spendings. As all current transforming projects will be mostly finalized in 2026, we expect to have less transformation costs in 2026 that will contribute to improve our cost-income ratio by 200-250 basis points compared to its 2022 level. Conversely, inflation and other investments should increase our cost-income ratio in a range from 450 basis points to 500.
All these moving parts, which are clearly identified, will lead to a significant decrease in the cost-income ratio of the group, which is a central aspect of the strategy and a key objective for the management team. In terms of profitability, we target a sustainable ROTE in 2026, between 9% and 10%, based on the reported net income at 13% Core Tier 1 ratio, contrary to past targets, which were based on a 12% Core Tier 1 ratio. The various actions plan we detailed today will contribute to reaching these objectives with two major effects. On one hand, the improvement of our operational efficiency will result in an increase by more than 150 basis points of the group's ROTE.
On the other hand, the strengthening of our financial profile, which will significantly increase the level of equity and the solidity of our financial profile, will weigh on the profitability in relative terms, not in absolute. To sum, our ROTE target is a result of a strengthened financial profile and improved operational efficiency, with product assumptions on revenues and cost of risk. To conclude on financials, let's now have a word on liquidity and on the other capital targets. The strong capital we will build over the period to reach a 13% Q1 ratio by 2026, will also contribute to strengthen the other ratios and enable us to achieve the following targets through the cycle: A leverage ratio comprised between a range of 4%-4.5%, an MREL ratio above or equal to 30%.
On liquidity, our objective is to maintain a robust balance sheet with an LCR equal or above 130%, and an NSFR in excess or equal or above 112% through the cycle in both cases. Lastly, in line with our cautious policy and a more dynamic approach in terms of NPL sales, we intend to have an NPL ratio between 2.5% and 3% in 2026. In conclusion, I would like to stress that we are committed to those financial targets, which are grounded in the group's strategy and supported by concrete action plans, with a strong commitment of the management team to ensure a successful execution. Thank you for your attention. I will now give back the floor to Slawomir.
Thank you, Claire. As I said earlier, our strategy is one word: sustainability. Therefore, ESG leadership is an imperative. We have taken strategic decisions to strengthen it and to increase our contribution to the UN's sustainable development goals. We accelerate the pace of the decarbonization of our business with new targets. We are investing for a sustainable future by continuing to shift our business mandates, and today, launching a new EUR 1 billion transition investment fund, through which we will support green technology innovation, nature-based solutions, and new transition players in earlier stages of development. We are stepping up in the way we manage our own impact on the environment. To that end, we are creating a scientific advisory board, an independent consultative body that will support the group's strategic ESG orientations.
We want to ensure that our transformation is one that is based on science with a long-term vision. Beyond climate change, including social challenges, human rights, and all the other components of the Sustainable Development Goals. Because we want to succeed in this endeavor and because we want impact and outcomes, we will establish meaningful partnerships once again with development agencies and the IFC in particular, to build on joint expertise and shared commitment to, towards, the UN SDGs. We will increase strategic philanthropic actions through our foundation, which is focused, among other topics, on social inclusion. Its budget will be increased by 50% from 2024. Today, we are announcing new and ambitious NZBA alignment targets. We increase our oil and gas emissions reduction target from -30% to -70% in 2030. We announce new sector targets for cement and automotive sectors.
We confirm our target for the power sector. Where possible, we strive to meet the or exceed the relevant 1.5 degree scenario, which is a decision often influenced by the availability of mature technologies in each sector. Within our oil and gas portfolio, we increase the pace of reduction of our upstream exposure to -80% by 2030, taking immediate actions with an intermediary 2025 step of -50 versus -20% previously. We will also stop all dedicated financing and financial advisory for new upstream greenfield projects, oil and gas, and we will deepen our engagement with our oil and gas clients based on their transition ambitions. Let's be clear, the transition is a transition. There is no switch which would miraculously take us from the past into the future instantly.
A responsible posture for a bank, especially one that is expert at energy, power, renewables, and transition, is one where we do our very best to support a realistic and responsible transition. It is also true that the paradigm shift that our society is facing creates opportunities never previously seen. I am firmly convinced that with our diversified business model and our deep sectoral expertise, we have the best fit to both capture these opportunities and to contribute to shaping the outcome of the transitions that are required. We are supporting clients in their evolving needs. We understand the full extent of the value chains needed to deliver a transition, for instance, how to finance the natural resources necessary to renewable energy technologies.
We are deepening the shift in each business, adapting business mandates, reinforcing ESG expertise, and partnering externally, once again, wherever needed, to make sure that the advice we provide to clients is the best possible. This will increase our competitiveness and deepen our client relationships. And finally, our distinct capabilities in ESG advisory and financing structuring allow us to capture mandates which are much more strategic in nature than what we used to be able to achieve on average before. So once again, increasing fee generation. A leading bank in ESG is not a bank that simply finances mainstream renewable power assets. We do, too, but we are a leader because we imagine solutions to finance the transition, the difficult part, new actors, new technologies, working often in coalitions and partnerships to set new common standards. We want to do well by doing good.
The successful execution of this strategic plan will rely more than ever on the commitment of our employees and management teams, and a strong sense of accountability from all. This is why being a responsible employer is therefore an absolute priority for us. We want our employees to be proud to work for the group, proud of what our clients achieve with our support, proud of our direct and indirect impact on society. We aspire to a working environment in which our employees can reach their full potential with personalized career paths and dedicated training, an environment that ensures the conditions for an inclusive culture and a healthy and high-quality life at work. Diversity in this regard is a key component and a much-needed continuous effort.
In that respect, we commit to allocate EUR 100 million to further reduce the gender pay gap and to have more than 35% of women in our top 150 key group positions. We will strive to keep a balance at the executive committee level. As clearly stated previously, we will improve efficiency across the group for the benefit of shareholders, but also for employees. More efficiency, indeed, leads to a better work experience with simpler processes and to better pay based on net value creation. We also intend to consolidate employee shareholding with an annual share ownership program. The ownership mindset is one which fosters alignment and long-term sustainable value creation.... At Société Générale, our people are our strength. Have always been, and will always be. And increasing our commitment score is therefore a key objective for management.
Since I was appointed, I have actively worked to shape a tighter and more diverse management team to ensure lean and efficient decision-making process, more outside-in inputs on substance and on culture, actually. I have built a team with people of great expertise, of great experience, who share the same sense of purpose and accountability. The success of our plan will not come without a change of mindset, to foster a culture of excellence across all the company's challenges and opportunities, from disciplined growth to disciplined capital management, and from disciplined business portfolio management to sound cost management. We are committed to delivering sustainable performance. This change in culture will permeate the entire company, and it will be reflected in performance management as well as performance reporting. Claire spoke to it.
We will use the reported net income as a norm to give a clear representation of the performance of the group to the market. The distribution policy will be aligned with performance. We think that management accountability should come with a consistent normative capital allocation to the businesses at 12% instead of 11%, and a more accurate allocation of transformation costs directly to the businesses. More generally, a greater proportion of central costs should be also allocated to businesses, and it should reduce the corporate center drag over time. We think that management accountability should come with a strict performance management system, where incentives capture properly the entire performance, from revenues to cost and profitability, in addition to the required high standards in terms of risk management, compliance, and conduct risks. We think that accountability is clarity. We think that accountability means no excuses.
I think that accountability starts at the top of the house. It starts with me. So what's the investment case? A 25 million client base, EUR 27 billion of resilient relationship-based revenues, a rock-solid financial profile, resilient and flexible, a competitive business with high margins based on leading franchises and a simplified business portfolio, a new, strong, and committed management team accountable for the plan. We are excited, and we are looking forward to the journey. We look forward to being, for decades to come, a leading rock-solid and sustainable bank. Thank you very much. It's 10:15 A.M., so let's take a break, say, 20 minutes, maybe, for our online audience, we'll start again at 10:35 A.M. sharp, London time. Thank you very much.
Okay, welcome back, everybody. The Q&A session is scheduled to last for one hour. We will first take questions from the room and then from analyst investors on the call. To give everybody the possibility to ask questions, we ask that, as usual, you stick to two questions per person. For those in the room, please raise your hands, and a microphone will be pointed in your direction. Before asking your question, please do introduce yourself and the company you represent. But for now, if I can very quickly just ask the operator to please remind those on the call the action that they need to take to ask a question.
If you're on the phone, please press star and one on your telephone keypad.
Okay, thank you, operator. The Q&A is now open, and we'll first start here, please.
Thank you. Hi, good morning, Giulia Miotto, Morgan Stanley. My first question is on slide... Well, the reconciliation between slide 15 and slide 50. So it seems to me like there is a willingness to be more rational, more efficient, simplified, have a simpler, perhaps business perimeter, but then there is no capital creation from potential disposals. So how are you thinking about this? That's my first question. Then secondly, the revenue assumption, the 0%-2%, is that because there is a self-imposed constraint on growth, RWAs are not growing much, or is that due to a lack of growth opportunity? I'll stop here. I would have more, but-
All right. Does it work?
Yep.
Can you hear me?
Mm-hmm.
Thank you very much. So, first question, the reconciliation is that you don't have a direct an answer to your question in the slide. So we don't disclose the potential disposal plan and disposal list for one very simple reason, is that it is highly sensitive information, right? And I've been around for a while, and I remember years where, you know, we said at the beginning of the year, we're gonna sell XYZ by the end of the year. We did, but the ones who bought the asset sold it 4x the price the two years later. So this is the only... And please, right, I can repeat this answer many times.
I know it's an element of frustration in terms of you wanting very precise answers there. This is the reason, right? So it is, as Claire explained, you know, merged in the, in the Slide 51, with other impacts which are go in the opposite direction. And, on the substance, to give you some color, the idea is really what I tried to describe when I talked about the, how we think about the portfolio, right? It's, it's, it's how we think about the portfolio. So it needs to be compatible with our ESG framework. It needs to bring additional value to the group. It needs to be bringing synergies, and it needs to have the right profile in terms of tail risks, right?
It's the short version of it, and this is how we're thinking about it. There's a number of question marks that are raised once I said this and once I apply this with discipline, and, you know, as we go forward, we will apply this without any taboo and without any complacency. So that's one. Second, a number of reasons. One, remember, 2022, on an underlying basis, even if this is the last time I'm gonna use this word, you know, the performance was strong. It was a high point in the performance of the capital markets. You know, remember, EUR 5.9 billion of revenues, well above the range that we discussed many times.
It was also the year where if you compared F&A performance, you know, versus, for instance, 2020, it was up, like, 20% or something like that. Obviously, it was a stellar year for ALD, because of, you know, extremely high, historically high, UCS prices, right? So the 2022, remember, is a very high point, so one. Two, the limited growth, right? At some point, it's mechanical, right? I'm not saying it's easy in our business to make money, but it is, you know, there is some, you know, mechanically generated growth through higher allocation of organic growth. You see it's extremely constrained for all the reasons that you understand, and so that's another reason, right?
And then, obviously, that's going back to your first question, there is- there are some assumptions about disposals there, right? Obviously. So, so these are the three reasons that, that, you know, weigh on this number.
Thank you for the question. Gentleman behind.
Hi, good morning. Tarik El Mejjad from Bank of America. My first question, I mean, is on capital. You clearly identified that there is a concern there by the market, and you have to fix that. The issue I have is two. First of all, why aiming for 13%? I mean, a diversified large European bank now is 12% with enough MDA buffer, so you raised basically the bar for you in terms of how much you need to build of capital. And second question, which comes back to the first question a bit, is why is it not addressed with more sense of urgency than you are? Because basically, you are building it by organic generation.
You mentioned that there is some hidden disposals potentially in the waterfall chart, but this is way below what we expect you to act in terms of asset disposals. If I take one, I'm not saying that's what you'll do, but if I take one, Africa. I mean, you announced four small countries, but I think you are below cost of equity in most of the others. And to reach your cost of equity, you need to invest a lot. And is this really a priority for you, to invest a lot in Africa and becoming very competitive market, where you can actually improve your overall group ROE, boost your capital faster, and focus on what you said a few times in your presentation, you do best? Thank you.
So why 13? I believe I addressed it during the presentation, but let me give it another try. It's because we believe that everything being considered, right? Our story, our track record, perception issues, I don't know, I mean, let me just for one second, draw your attention to one of the slides where we talk about risk management, and we talk about the volatility of our top-line revenues in market activities. I don't know if you paid attention to this graph. It shows that we actually have one of the best track record in terms of volatility of market revenues in the world, right, I mean, in our, in our sector, since 2018.... How many of you think that here, right? Spontaneously. No one, right?
So we have a set of circumstances that we cannot ignore, right? And ignoring them is not running your ship responsibly, right? And so because of that, and the idea that we want to put away over time, any idea that we cannot withstand shocks, new things coming up, you know, I don't know what the regulator can come up with, you know, in the next few years. I mean, I'm sure they are working on their own innovation. And so we want to put these things, like, away, right? In a specific context, which is ours, right? So of course, we could operate the bank much at a much lower level, but what we want to send as a signal here is that we wanted to do this, this way, because for us, this is being responsible, actually, towards shareholders, right?
But ourselves as well. So that's, that's the reason. In terms of the sense of urgency, I mean, it's embedded in my previous, in my previous answer, and I'll be more specific. It's, you know, we don't need to do that, right? So I think once again, right, we have a three-year plan, we have a number of things happening, and we want to do this over this period of time, because precisely, we think that this is the right target, but we don't need to do that today. And I remind you that in phased in, in the phased in approach, we are actually at 13% today. Slightly more specific on the disposals, right? The reason I already gave it, why we're not more specific, believe me, right?
Believe me, and I don't believe me, you know, just my word, but wait for it, right? Not everything happens today. You know, there is no complacency in how we approach this topic.
Thank you.
Thank you for the questions. Let's go for the gentleman in the pale, pale blue shirt.
Thank you. Guillaume Tiberghien from BNP Paribas Exane. The first question is on Boursorama. Three years ago, you said you needed to have two or three more years of losses to reach 5 million clients, and now you need two or three more years of losses to reach eight. Are we gonna actually have earnings at some point, as opposed to just... I understand the value creation longer term, but at some point, you need to actually deliver, maybe. The second question relates to global market. The previous target was EUR 4.7-EUR 5.3, but you've added, I guess, EUR 400 million from AllianceBernstein. So actually, are you downgrading a little bit the targets for global markets? And if so, why?
So, on your first question, so if, if I may, from my point of view, of course, right, slightly different story. Boursorama delivered on its targets and showed very clearly, and not just for one quarter, that, as soon as they slow down, their acquisition investments, they are actually highly profitable, even much more than expected. But it is to be expected because obviously of the change in the rate environment. So that's one. Two, I believe that if you have a distinct asset, right? I mean, and no one can question this, right? You know, we're not, you know, all over Europe, we're not all over the world, but in the French market, which is not, you know, a marginal market, it is an absolutely distinct asset, right?
I think from this perspective, while we do all kinds of other very conservative things, right, as you may have gathered by now, you know, this one needs to have our support, because for shareholders, this is the right decision, right? For the long-term value creation, this is the right decision. EUR 5 million is not enough to establish the right leadership in the market, which is still completely, you know, in infancy to some extent, and forming. It's about the future, and we have a responsibility to the people who are all actually going to come after us. And I think this is how I see this topic, and I feel very, very strongly about this.
And I think that you see all the when you look at the granular parameters, and, you know, if you want to have a follow-up, if we have time, I'll be happy to pass the mic on to Benoit. You know, he can walk you through every single indicator, you know, cost of acquisition per client went down. Hopefully, I'm not gonna, you know, say something stupid, from EUR 250 to EUR 150 over the last few years. So massive decrease in the average cost of acquisition of one client. You see cost per client, obviously, because of the scalability, improves massively. The consistency of higher value per client, you can see it on the slides, vintage after vintage.
Every single parameter you want to look at is the right one, right? Is one that is making the story compelling, and this is why we made this decision. I'm so worked up by Boursorama that I... Okay, the range on the global markets. Okay. So, here, I don't know if you want to give some color, maybe, Alexandre? Alexandre, co-head of Global Banking and Investor Solutions, and a former co-head of Capital Markets.
Yes, hello, good morning. Global markets activities are very dependent on market conditions, on market volatility. Our view is that market conditions were very conducive over the last few years. You mentioned 2022. Our base assumption or our base scenario is that market conditions will normalize in the near future. No need to remind all of you that we've gone through a profound reshaping of our markets activity, which are much more robust nowadays and a much better risk profile. If market conditions were to be favorable and if opportunities were to arise, we believe we will be able to seize them.
So just to answer also, like, very directly, the quantitative question, you know, think of it as fairly similar to where it was.
Okay. Thank you for the question. We've got a lady just at the back there.
Hi, good morning. Can you hear me? Yeah. Azzurra Guelfi from Citi . I actually like the plan, to be totally honest. I think it's good in the long term and the action that you are taking. But there is one thing that is missing: the building blocks to 2026 in terms of profitability for the values here. Can you give us some color on the profitability of 2020 to 2024, just to understand how this will progress over time? And linked to this is, do you think that once you start cutting costs, because it's something that the company hasn't done much in the past, that you will find extra potential buffer or other activities in terms of cost rationalization? The second question is on the payout, if I can. You mentioned between 40%-50% payout.
Is it reasonable to assume that you will keep 40 until you reach 13%, fully loaded Basel III, or we can see a different way of developing? Thank you.
So I'll address the distribution question, and Claire, maybe you want to address the profile of the improvement in terms of the profitability in the end and cost to income. And maybe I'll also address myself the question, you know, do we think we can do better in terms of cutting costs? So on the payout, obviously, the idea is to have some degree of flexibility intrinsically linked, and I know you all understand that, to the goals that we want to achieve, right? In the end, it's about delivering on targets, and part of the equation, you can do the math, right? Being at 40% throughout the three years is not gonna make us, you know...
I'm sorry, bridge all the, all the, the change, right, in targets in terms of capital base, but it could contribute. So the way we think about this, it is rational to expect that we will be on the lower end at the beginning of the trajectory, but then it's, it's more a matter of how we, how we see the trajectory, right? So let's take the disposals, right? For instance, the few disposals that are there, you know, if for some reason, you know, we decide to act on them and, you know, everything goes as planned, as you all know, right, in this space, it's not that, you know, it's your decision and everything happens, you know, overnight afterwards. You know, it's these are processes. We were talking about Africa before.
You know, have a look at the process of disposal of some of our French peers in the continent and when they started and where they are right now. So you have to have options, right? And depending on how ultimately this path of building up the capital looks like, you know, we could, we could have a more higher payout ratio, right? But it's fair to assume, you know, lower at the beginning, higher at the end. In terms of the cost, and then I'll pass the mic to Claire. In terms of the cost, listen, generally speaking, I've said this, I'm gonna repeat this, we want to deliver, right?
So a little bit like with the market, range, you know, in the last three years, there's no quarterly call where some of you don't ask me the question, right? Is this, an underset, target, right? On purpose trying to be low so that we can always beat, et cetera. No, right? As I said, I think at the last call, it was a fair assessment of where it is normally, right? We had extraordinary market conditions. We were, and I said this three years ago, we were positioned to capture that extra value, right? And that's great that we did, but it's, it's still a fair assumption that this is the right range. So same with the cost. It's our most honest assessment at this point. Believe me, right? If we find a way of doing better, we will immediately, right? Immediately, right?
And I'll explain why and what is it that came up all of a sudden in our trajectory that allowed us to do better. Claire?
Yeah. So we will not disclose precisely our intermediary targets, but maybe behind your question, I understand, will you have a J-curve? So maybe a few comments in addition to the ones already done during the presentation. So first, we anticipate a linear improvement of the cost income since 2024, so no J-curve in the trajectory. Maybe-
J-curve, just to-
J-curve. Slawomir talked about our very pretty French accent. I'm the one. At least the accent. So, no J-curve in the trajectory, linear improvement of the cost/income ratio all along the trajectory. Maybe a few additional comments regarding the building blocks for this improvement. So regarding revenues, we've made very clear on the, like, prudent assumption, which is related to a 0-2% range regarding improvement of the revenues. Regarding costs, the improvement of the cost base will be mainly driven by the already identified projects, such as merger in the French retail and synergies on the ALD side, that will deliver the full synergies since 2025 and 2026 for the two projects.
We will have additional CTA and global CTA for all these initiatives, which will mostly come in 2024 regarding these projects. The ones that were already embarked in the trajectory, that represent around 60% of the global CTA, and the additional ones. Regarding the cost of risk, we gave you, I think, quite a clear guidance between 24.5 to 30. So these together will lead to, once again, a linear improvement of the profitability of the group, notably, since after 2024, with the deliveries in 2025 and 2026.
Thank you for the questions. We take the lady just on the corner here.
Thank you very much. It's Anke Reingen from RBC. Just trying to understand, back on the capital distribution, you said your revenue growth assumption makes an assumption on disposals, but your capital path does not, if that's correct. And at what point would you consider raising the distribution? Do we have to wait till end 2026, or would you potentially visit this earlier? And then second question on the 2026 ROE and cost income ratio target, how much of transformation costs are expected to 2026 and will be included in that number? And should we also not adjust because basically you think these transformation costs will now keep on coming? Thank you.
So, second question for Claire, on distribution. So, I gather that I could be clearer, so I'll try one more time. So it's obviously whenever you have a range, it's a matter of a certain degree of flexibility. Like, the goal, the overarching goal, you understood, is, you know, strengthening the capital base. So the first driver of these decisions will be the capital base and then how the trajectory, right, at the moment of making the decision on distribution, looks like in terms of meeting this target. So, it's clearly not set in stone right now. That is going to be back-ended. So this is why if we had that, we would've told you, right? We would've told you, I don't know, 40, 40, 50, right?
That, that's not what it is, right? It's, it's fair and probably reasonable to assume that, you know, it's more on the lower side at the beginning, more on the higher side at the end. But in the end, we will make the decisions based on the actual situation, where a number of things are gonna come, right? You know, we have prudent assumptions there in terms of rating migration, right? If they don't happen, we have immediately, right, you know, extra flexibility. So depending on how this quite complex equation looks at the moment of making the decision, we might increase the distribution. There is no preset, you know, annual structure throughout the plan
Well, not within the distribution policy. But should we have excess capital for whatever reason, right? You know, anything could be on the table. No, no, there's the second... The first question, actually, the second question on-
Yeah, regarding-
2026 ROTE, cost-to-income 26, transformation costs.
Yeah, it's transformation cost. Regarding transformation costs, once again, around EUR 1 billion all over the trajectory, most of it related to 2024. So we guide always very precisely for the year to come, not right now for 2026. But please keep in mind the fact that the sharp decrease in the CTA, in the transformation cost, is part of the improvement of the cost income in 2026. So we should have, in 2026, quite a small or very reasonable amount, most of it being impacting 2024 and 2025.
And one more comment, it's to address the final portion of your question. It's no, there is no intention of keeping on, you know, piling up transformation costs for another decade, one. And two, one of the many ways to do this, right, is obviously to make sure that the people who are spending them have them within their own P&L.
If we can go with the gentleman here, please.
Hi, it's Amit Goel here from Barclays. So two questions. The first one a little bit more detailed, the other one a bit more strategic. So just detailed, in terms of clarification on that capital return, don't want to labor it, but in respect to 2023, I couldn't tell whether there will be any share buyback or not. And then secondly, on 2026, because there's that 13% CET1 ratio at the end of 2025 and at the end of 2026, is that an assumption about excess capital return getting you to a higher payout? And then my strategic question is just coming back to that kind of 9%-10% ROTE target. I mean, when I'm looking at European banks, I think pretty much everyone is gonna have a 10%+ return target, probably by 2025.
And when we look at the sector, we see 12%-13% returns on average overall in our estimates. So I just wanted to get a sense, when you think about the targets and when you're setting the targets, you know, how do you put that into the context of sector profitability and how you allocate capital? And, you know, do you think this is essentially what this group can achieve, or do you think other people are being too optimistic, or how do you think about that? Thank you.
Thank you. So, on the clarification, that you are asking for on the distribution of potential excess capital, right? But once again, if for whatever combination of reasons, as you understand, a number of things influence your capital base at a certain point in time, you know, we set clear, you know, guidelines in terms of organic growth. So organic growth is not going to be one that impacts it, right? So we're not going to show up one day and saying: "You know what? We changed our mind, and we decided to free up a lot of organic RWA allocation." So that's not going to happen. But the number of other things, you know, influence the capital base at any point in time.
So in the case, which is not unlikely, right? I mean, this is not our central case, but in the case where we would reach within our trajectory levels that are higher than what we expect in our base case scenario in terms of timing, right? We would consider, obviously, any rational decision in terms of distribution, right? But, you know, it's not something that, you know, I would model right now. You know, right now, we gave you the picture that we think is the right, the prudent one, and yeah, and that's it. Now, again, right, if there is excess capital to be dealt with, it will be dealt with transparently and rationally.
Again, not through you know allocation to organic growth you know which would not be consistent with our current view of our trajectory. In terms of your question about our ROTE target, well, first of all, I'm not going to comment you know our competitors. So you know they have to speak for themselves. What I can tell you is something very simple, right? You know, 13% capital base. So that that's already... I think it was in the slide, that's already you know a quite quite significant right impact downwards on the on the ROTE because you have a higher denominator right? So that's the first thing if you want to compare us to others. And second, it is about again our circumstances.
I hope I was clear talking to some of our challenges and opportunities, right? To have a more efficient firm, to have a more streamlined firm, et cetera. And these challenges are specific, right? And so, this is, believe me, the best, most honest assumption about what we think we will deliver, right? And today is about that, right? It would have made no sense to me, like, no sense whatsoever, to come up here, you know, target something that would raise less questions, right? And tell you, "Let's talk about this in three years' time, and then I'm going to come with a lot of excuses." That's not how I work, right? So we have thought about this extremely carefully, right? And with a higher denominator, right?
So once again, with a lower denominator, we would be at double digit, if we had stuck with the 12%. And so we set this target where we think is the base case scenario of what we will deliver. Please, maybe just Jazz, I'm going to—because the gentleman with the red tie, like, I think was one of the first to have asked the question, so
Thank you very much.
Please.
So Jacques-Henri Gaulard from Kepler Cheuvreux. Two questions. The first on distribution, again, sorry. For 2023, you have the DTA provision and the impairment that's excluded from the net earnings, I guess, for the last time, right? So we start in 2024 on reported, and here we deduct the DTAs to calculate the distribution. Did I get that right for the one, two, three, four years? That's the first question.
So, not exactly.
Okay.
So what we are saying, and I think it's in the slide, right, in a, you know, in a footnote, so with the size of a presentation, probably not very visible. But if you look at it on the screen, you'll see it. And the footnote was very, being very specific about this. It's obviously, we deduct the interest on the hybrid, right? And then it's, we deduct, you know, this time it's these two items, non-cash items that don't affect capital, right? So, say we have, like we used to, you know, an accounting windfall because there's actually a crisis out there, like, 15 years ago, and, you know, the spreads on our issuances, you know, generate revenues, non-cash revenues.
You know, obviously, we're going to deduct that because... So anything non-cash will continue to be deducted because it doesn't affect capital, right? So we're trying to be rational about this. And then, you know, to a limited extent, I guess the board has always the ability to exclude something, like in any company, in any sector. But the point we're making here is, we were the number one in the world in terms of discrepancy between underlying and reported performance, right? And including there, things that were to madam's point, you know, for instance, massive recurring transformation costs, right? And I think this is not the right way to manage a company, and therefore, this is what will always be deducted from performance, right?
For 2023, indeed, these two things will not be, you know, impacting distribution.
Great. And I had a second question, if I may. I have the feeling, hearing you, that you put yourself voluntarily in a decompression chamber for three years, okay? And it's like, okay, we're going to show you, we can actually deliver quarter after quarter. It's going to be fine. You're going to be 13%. I have the feeling that once you get the approval of the market, then you will afford yourself to be a bit less conservative, but that's not before 2027. Is this the right way to look at this?
... Listen, I'm not speaking about 2027 today, so I can't give you a direct answer, so to speak, but I'll share a bit of my mindset, kind of. But I'll rephrase one thing that you said, not just because the approval of the market, right? But because there's a lot of underlying change there, both from a structure of cost, et cetera, structure of the business portfolio, eventually risk profile, et cetera. So the combination of all that, you know, maybe we'll spend another few months, and actually we're doing this every day, thinking about this, and we'll try and come up with something that makes sense. So it's not just the approval of the market, right?
It's because potentially our circumstances, to my earlier point, will be different, right? But they are not, they are what they are today. I just wanna go back for a second to, something I forgot to address here, which was the share buyback for 2023. So here, you know, for kind of obvious reasons, you know, it's going to be a decision we'll make on an ad hoc basis, you know, when the year is over, at the board level.
Okay, the gentleman just at the back there.
Hi, um-
Hi.
Hello. Matt Clark, Mediobanca. So a couple of questions on ALD, please. I guess the first one is the return on tangible equity you were targeting a year ago was over 20%, and now you're guiding to 13%-15% return on tangible equity. So that's a material downgrade in the profitability of that business. Should we therefore view the LeasePlan deal as being value destructive now, rather than value creative? Or perhaps you can help us understand why there's such a radical shift there. And then the follow-on question is, you said that you will review your portfolio holdings for whether you are the best owner.
Are you the best owner of ALD now, given that the need for them to be a banking regulated entity because of your ownership is arguably part of the drag on their profitability? So two questions on ALD, please. Thanks.
Thank you very much. Very clear questions. Pierre, you wanna give us the answers?
Well, I'd like to take one step back. ALD is the biggest company in its industry. It's twice as big as the second, as the nearest competitor. It has the best-in-class cost to income today. It will be the case tomorrow. It operates in a market that is going to grow by 7.7% year-on-year. The return on equity is accretive to SG, above the average of Société Générale in the plan, and the cost to income will be lower than the average of Société Générale. So we believe it's an investment that is going to create a lot of long-term value for our shareholders.
It's true that the return on tangible equity was higher lately, but you need to remember that the prices of used car sales were extremely high, and therefore, we are integrated a more normalized market in the years to come. So that's for the first one. Second, are we the best shareholder for LeasePlan? I think we are. Several things. First, ALD LeasePlan is getting regulated. In this process, which is a complex process, having a shareholder like Société Générale is extremely helpful. Second, Société Générale provides some funding to the company. Third, it has a positive impact on the ratings, and therefore, on the ability of the company to raise funding on the capital markets. So I think having a shareholder like Société Générale is extremely valuable to the company.
But maybe I'd like to Tim Albertsen, who is the CEO of ALD LeasePlan, the new combined entity, to give you a little bit more color.
Okay.
Hello? Yeah.
It's a question.
Hello, hello.
Yeah.
Well, thank you, Matthew, for the question. So I think coming back to Pierre's point, I mean, obviously, talking about this acquisition brings an incredible value to, to ALD. As it was said, you know, the, the leadership positions we're gonna achieve is massive, and we know that we are in a business where our scalability matters a lot, and obviously, we will obviously, capitalize a lot on that. On the cost income ratio, obviously, that was disclosed this morning, different to what we initially anticipated. But if you look, as Pierre said, in the industry, we just had one of our biggest competitors who disclosed their half-year results, and they are at 66% on a like-for-like basis.
So the 56 that we are on a pro forma basis in 2022 is still extremely good in the business. And we are taking the, I would say, let's say, the opportunity with the integration of LeasePlan and the synergies that we're gonna achieve and that we have confirmed, the EUR 440 million of synergies over the next years, that will drive down the cost income from the 56 to 52, and again, 52% being absolutely the best in the industry. I would say the, maybe an additional point on the ROT. It's true that we are trending a bit less than before the COVID crisis, but we are also a different company. Obviously, the cost of being regulated has an impact.
And obviously, we have seen, as we stated in the press release this morning, that some of the IT costs have also been a bit different than we anticipated. But obviously, if you look at a ROTE of 13%-15%, it's in the best end of financial institutions, and hence, you know, still a very strong result. And overall, as it was said, first of all, our position in a market that is growing fast with a lot of perspective, obviously means that the deal with LeasePlan is still extremely accretive to a lot of things we're doing. And yeah, we see that as an incredible opportunity for us going forward, also after 2026.
Two quick comments from my end. So my understanding, I don't want to speak for the regulator. They're not, you know, these companies are not becoming regulated because, you know, in this particular case, because they're owned by Société Générale. Understanding is that the regulatory strategy here is for them to become regulated. So it's not specific to Société Générale, and it's gonna be a change for a number of other players. So that's one, and two, remember, today, although we have, you know, dreams, and, and, a willingness to to become maybe, you know, a, a big player in B2C and usership, et cetera, et cetera, which could be an incredible opportunity, and we have that optionality with, with ALD, what they are. But right now, it's a B2B business, and the clients of ALD are our clients, right?
So, this is another thing that you need to understand. There's an intrinsic, fundamental synergy in the clients we address, right? With another high margin, right, kind of low risk when well managed, business that addresses our core client base on top of the other topics. Please.
Thank you. Thanks for the question. We've got a gentleman here, and then after, we'll take the lady just behind.
Thank you. Chris Hallam from Goldman Sachs. So first question on Boursorama. You talked earlier about sort of fair assessment versus conservative targets, and I just thought for 2026, in Q2, you posted EUR 47 million. If we just annualize that at EUR 200 million, three years later, 60% more customers, obviously, there should be operating leverage in that business. How should we think about that EUR 300 million or greater than EUR 300 million, perhaps being on the conservative side versus the fair assessment? And then secondly, just on slide 53, the inflation bucket of 450-500 basis points, how much of that can you already see coming? You know, there are identifiable items that you have in the plan versus a best guess of what may occur.
And am I right in thinking maybe, Claire, to your earlier point, a lot of that is in 2024. You talked about the linear progression on the cost-to-income ratio, in 2024, you've got the big SRF benefit, so is that sort of front-end-loaded inflation?
All right. So, let's start with Philippe on Boursorama and Claire on the inflation.
Yes, the main explanation, it's quite simple. It's because 2026 will be really the first year of profitability. We are going to recruit a lot of new clients in 2024, 2025. This was mentioned by Slawomir during the presentation. We need two to three years to equip all these clients. And definitely, again, it's a strategy of growth for profitability. So we are making this effort, 2024, 2025. 2026, we will reach this first level of profitability, which is already quite good, and this is only the first step.
In the meantime, we would have built this platform of more than 8 million clients, and we have a capacity, which has been described of Boursorama, to equip this client, to collect deposits, to sell, you know, all these products with a very strong monitoring of the cost base. It will deliver for following years.
My turn regarding... Yeah, you hear me? My turn regarding inflation. So I will make slightly the same type of answer to, I think it was, Edward, I think. So I will not disclose precisely the profile of our cost base. I consider that we provided you with quite very detailed information regarding the waterfall or the bridge on the cost income side. So maybe in addition, a few comments. So first, the same, which is, we anticipate a linear increase of our cost income since 2024.
Decrease.
Yeah, decrease, for sure. Accountability and transparency, I'm starting quite well in my position. For sure, a decrease, that's why he's CEO. For sure, our cost income. Maybe second comment regarding inflation. So as you've seen, we will more than offset the impact of inflation with a gross savings plans. It's based on several assumptions, being for sure related to our economic scenarios. So our inflation assumptions are exactly the ones that are embarked in the economic scenario, with no direct link between our cost base and impact of inflation or on our cost base. Considering several, let's say, mitigants on our cost base, such as the fact that regarding external spend, we have the ability to renegotiate some external spend.
We do that for more than a yearly basis. Regarding salaries assumptions, we have until now been all the time, slightly below inflation impact. So all these leads to the conclusion, which is that we will not have a direct impact of the inflation on our cost base. And maybe last comment, you have our economic assumptions, so we have we anticipate a high level of inflation at the beginning of the trajectory, one being this year, notably, and a slight decrease for the rest of the trajectory.
Thank you for the question. Just the lady here, please.
Thank you. Delphine Lee from JP Morgan. So two questions also. My first one is, if we could talk about French retail and your NII outlook on slide 52. Can you just explain, a little bit more, you know, where the expansion in the commercial interest margin is coming from? What assumptions you have for lending growth, also maybe Livret A and deposit beta in general, just so we understand, the dynamics here. And then my second question is more generally on, on this plan and how that impacts your long-term incentive plans on management remuneration in general. So just we have understanding of, you know, what, what the incentives-
Mm-hmm.
To align with, you know, shareholders' interests. Thank you.
So I'll start with that, and then maybe Claire and maybe Philippe on the French retail, both some of the dynamics and the technical aspects. So in terms of the incentive plan, I mean, you know it, right? It's disclosed in the documents. It's voted upon by the AGM. And it's a system where we have, all of us, and starting with me, obviously, a significant amount of our rewards that are linked to...
That are paid in shares or share equivalent instruments, and that are, in terms of the long-term, portion, are, directly linked, typically, partly to a TSR, you know, versus a group of peers. So that's, that's one. And then maybe one fundamental piece is that, obviously, our own performance will be, first, against, these targets, right? And the trajectory, and on a reported basis, and not on an underlying basis. So I think, fairly aligned, and on top of this, I have a significant ownership, target in terms of the, the shares, which is set at 120,000 shares. And, you know, my partners have also some targets.
So I think fairly aligned. You know, we will do well if the investors do well. We will not do great if the investors don't do well. And on top of everything else, as I said, I do feel personally, and starting with myself, accountable for this plan. On the NII?
Yeah, so maybe a few comments on the main assumptions we have embarked in the commercial margin trajectory. So on the credit side, something quite prudent and conservative, with no significant increase of the balance sheet, with some comments to give you some colors on the credit side. First, the sharp decrease we had in the real estate loans, we consider that it should restart with a moderate growth. Regarding corporate loans, for sure, the amortization of the state-guaranteed loans and once again, a slight increase, considering the assumptions we took also on the LWE side. So on the deposit side, we make a significant difference between corporate, and notably large corporates and retail and small corporates.
On the corporate side, large corporates, we anticipate that the arbitration between sight deposits and the rest of, the, let's say, remunerated offer, including off-balance sheet products, will go on, will continue at least for the next two years, considering the interest rate assumptions we embarked in the trajectory, and notably on the large corporate. If we look at currently what happens, we have corporates outflows from the sight deposits. We are in a capability to capture them on the term deposit side, and notably on the CIB side, with for sure a deposit deposit beta.
On the retail side and small corporates, we see something more stable in our forecast, with for sure arbitrage going on from sight deposits to term ones, and notably regulated savings that offer an attractive remuneration. So a kind of shift in the balance sheet from sight deposits to this type of a regulated savings. That's what we embedded in the trajectory.
Well, maybe just to add a comment to mention that, wealth management, collection of deposits, of assets, are clearly one of our priority. For example, you know, the merger is a good opportunity because we have a capacity to leverage over a range of products and services of Société Générale with accredited clients. That's notably true on private banking. And, as it was mentioned, you know, we also plan, you know, to reinforce the synergies between our retail banks, private banking, and insurance. So definitely, you know, it's a more global answer, but wealth management, collection of assets, are very important, and also for Boursorama.
... I mean, as an exception to the rules, it's an important question. I mean, Delphine, any, any follow-ons? I mean, clearly, the underlying, you know how it works, rates, times, behavioral, behavior-induced changes in inventories, right? And on the inventory side, it's a, it's a prudent vision of the future. Obviously, there are no, you know, bizarre assumptions about the inventory, given our scenario, which is one of basically fairly stable, evolution of the rate environment, right? So, I mean, just, just, if that was part of your question, but any follow-on, you know, please.
So in terms of the Livret A, you have it declining, I guess, by the end of the plan, not staying at 3% or-
You mean on the outstandings?
On the rate.
No, no, on the rates.
Ah, for sure. On the rate, we have an assumption, which is, until beginning of 25, the rate has been fixed by the government, so we took this assumption. And since January 20, 2025, we applied the formula, which is 50/50 rate and inflation, based on our economic scenario. So we have a soft landing assumption of the Livret A rate by the end of the trajectory. And regarding outstandings, as I said, on the contrary, we have an assumption of an increase of the outstandings on the regulated savings globally, on Livret A, and also the products that are that have a strong correlation with Livret A on the French market.
Okay, thank you very much.
Thank you for the questions. We've got a lady just at the back here.
Hello, Flora Bocahut from Jefferies. I'd like to go back to the revenue trajectory, especially, you know, the slower revenue growth than I expected. I'm trying to understand what's driving this. I think it's essentially French retail, because if I think across the group, obviously, you start from 2022, which is a high base. We talked about markets. It's true, you know, it was a strong year in 2022. ALD had a strong year, although actually you get LeasePlan in, so this should have helped also, you know, in the revenue trajectory. So I think the bulk of the deviation is actually French retail. And in there, I had two questions. One is on Boursorama, where, you know, you talked about the new objective to target now 8 million clients.
I have to say, that's one element I don't understand, because I had in mind that getting to 4-5 million was the scalability you needed to then be able to have substantial profit. Meanwhile, obviously, we've had rate increases that should even improve the profitability of Boursorama versus the previous plan. So why do you feel the need to continue to grow so aggressively and at such high acquisition cost on the customer side when you're already, you know, at more than 5 million? And then in French retail, going back to Delphine's question on the NII, and looking at the slide you had, you know, on the commercial NII versus ALM drag, and there's been a massive change in rates, and yet you're telling us, you know, there's not gonna be much rate sensitivity at the end of the day.
So is it because it happens that ALM worked the wrong way this cycle, or is it like, actually, the rate sensitivity is much lower than what we had in mind? Just trying to understand, you know, why the NII is not gonna grow much more than that.
Okay, so, let me address, Boursorama, on the, the strategic side, so to speak. And then, Claire, on NII, and we'll see, we'll supplement, Philippe and I. In terms of, of the Boursorama, equation, I think, what I, you know, I deal with the legacy, that I inherited. I wanna, I want to say here that I'm not sure I understand how 4 or 5 million clients was the right asymptote in this market, right? We have roughly, you know, 8-9 million clients in the French network of a completely different nature, right? With a, with, also different products, et cetera, et cetera. Obviously, a much higher revenue per client than, than Boursorama.
It's not the same model, but I don't feel like, you know, I have the maximum scale there that you know caters for the best structure in terms of cost and the best economies of scale, et cetera. So I'm telling you this very directly, I don't think 4 or 5 million was the right number, right? And it's not about, you know, it's not about so much what's the number at which point you can optimize value extraction, which was a little bit embedded in your question, right? So there's no, in my view, like, a level of a total level of client where you can say, "Okay, here, now I can, you know, bill you more for this and have more fees of that," or whatever.
This is not, in my view, how it works. It's the question is, you have something which moves at a slower pace, right, in terms of behavior, than most of the other markets in Europe. At a slower pace into the digital world, but frankly, 15 years from now, you know, chances are, and certainly our assumption, that it's going to be the leading form of being in a relationship for an individual with a bank. And so this is how we think about it, right? So we have, like, by far, and it's this, this cannot be disputed, you know, the best vehicle for acquisition and one that works, right?
You have plenty of data there that shows you that it's not like, you know, we're not still spending EUR 215 per client like we used to, and we're, you know, our efficiency is decreasing or whatever. No, I mean, every single piece of the equation is showing you that it's the right direction, that the economies of scale are there, that the cost per client goes down, that the income per client goes up, et cetera, et cetera. So with all this, this starts there, right? If we didn't have that, we, we would have a different view. But because we have that, right, we have the proof of the improvement, intrinsic improvement in the business model... then, right, the only strategic matter at this point in time is how much of that future market are we gonna grab, right?
These are young people, mostly with the stats that we have. These are not, like, formal stats, but, you know, with the stats that we get from the client acquisition, these are rather wealthy, urban, young, younger clients, right? So this is the future, right? So here, the equation is, how many of these clients of the future can you grab right now? And it's overwhelmingly more important, right, than whether you're gonna bill them EUR 2 or whatever the number is per month or 5 or 10 per month for having the account. And that's my answer to you. Second question is, there were, you know, assumptions about fee generation, right in that previous plan. And part of the figure being what, what it is, is that we no longer have these assumptions.
For once again, the same reason which I hope, you know, you got by now, which permeates everything we say, which is: we want to be precise, transparent, and conservative, right? Right now, I don't think that doing both at the same time would be the right answer, right? We spent a lot of time with Benoit, discussing this with Philippe, et cetera, et cetera, and we believe that now the right time is to focus rather on acquisition, on acquisition, still, while being in this process of improving. And therefore, because of the better rate environment, and the fact that the clients, obviously, you acquire them towards the end of the trajectory, so you don't have the full benefit of the current level of monetization.
This is why you have this EUR 300 million figure, which, you know, grows very significantly, you know, with if, even if you stop the client acquisition in the following years, right? Which are not part of this trajectory. So I hope I've been clear on this. On the NII,
Yeah.
Follow-up.
Yeah, so on the NII, for sure, we have embarked, and it's, it's on the slide, a recovery of the, net interest margin all over the, the trajectory. This, being said, we have embarked by the, on the back end of the trajectory, a, a stabilization of this, this increase in the, NII, for the reasons I already explained, which are, first, our interest rates assumptions, because by the end of the economic scenario, we have a downward trend on interest rates. So for sure, it has a consequence, and other consequence, we have a stabilization on the NII increase.
The second one is the one I disclosed previously, which is some product assumptions regarding the balance sheet with, on the credit side, moderate growth linked to in line with our notably other assumptions. On the deposit side, at least on the corporate and also on the regulated savings on the retail side, we took some product assumptions regarding the kind of deposit beta. So this is not... We keep a good momentum on the net interest margin, and we have embarked on a recovery on the net interest margin in the trajectory, but with the stabilization at the back end of the trajectory. I hope it's clear enough on the graph.
Again, don't forget, when we talk about this 2022 reference point, like, you know, markets, we're talking basically about EUR 800 million less, right, in the trajectory than 2022, and just to spit it out.
Okay, thank you for the question. Any other questions? Yes, we have a gentleman just here.
Yes, good morning, Pierre Chédeville, CIC. I have two question. First question is regarding capital, because one of your idea from the plan is to reduce the gap between the share price and the tangible book value. And you also mentioned that you want a balanced distribution between dividend and share buyback. And I was wondering if we say balance, it means 50% or something like that, of share buyback and 50% of dividend. But if you succeed in your plan before 2026, and that your share price is increasing at a level closer to the tangible book value, do you think it would be as pertinent to balance between share buyback and dividend? First question. My second question is about globally your insurance.
You transfer your insurance into French retail, so I guess that you want to put the to emphasize on the development of insurance into the French retail networks, I guess. And I was wondering if you had some color to share with us in terms of, for instance, equipment rates and progression of equipment rates in your networks in terms of insurance products. And if you have also ambitions into the health, which is a segment that in the insurance business is developing very fast, with good margins and not very expensive in terms of capital, which is quite important in your global strategy. So if you could give us a little bit more focus on insurance. Thank you.
All right. Thank you very much. I'll address the first question, and Philippe, you know, I leave the floor to you on insurance, with only one comment about the healthcare: you heard me saying, you know, we wanna do things that we excel at.... so if we have the right circumstances, right, maybe because of everything you said, appealing margins, potentially, et cetera. But certainly not just because, you know, there's a market out there, and so let's grab it and let's do some stupid things, right? So if we do it, we'll do it right. But I'll leave the floor to you on insurance more generally. It's an essential topic. On distribution, I mean, obviously you're right.
But, and, you know, I'm not here to give my own predictions, certainly not on our share, but neither on the market. But let me put it this way, right? Everything we will do will have to make sense for the shareholders, right? So let's assume the entire European banking industry is at one, right? Which it is not, but let's assume it's at one. Well, then you go back to basic financial theory, and you know, you wanna do buybacks, even if they make sense in terms of how much it costs you from a rate perspective, right? And most likely, in the current environment, wouldn't make a lot of sense, right? So we will be guided by financial theory, nothing else, right?
That's my answer. On the insurance?
Yes, on the insurance, well, you know that we have an insurance company which already works pretty well. The idea is definitely to go one step further on the French market, and I will comment on international market and all the partnerships. So you know, sharing the goals maybe more than in the past, you know, same management, you know, common goals. We will also make sure that we deploy all this expertise on the ex-Crédit Lyonnais perimeter, because that's one area where Crédit Lyonnais was less performing well. We'll also make sure that in the definition of the client journeys, you know, in the self-care capabilities, in the app, you know, we are also making progress.
We will continue also to increase the expertise of our teams in this area, you know, more trainings, where we are also recruiting more people. We, who sold insurance products before, you know, we, we see a, a big difference, you know. So on life insurance, you know, the momentum is quite good, and on the non-life insurance, you're right, you know, we have goals to increase the penetration rate overall on protection at least to 30%. So that's for France. We will continue with the same approach, combining, you know, retail and insurance abroad, and we have very good partnerships, notably, with KB, BRD, and Morocco.
You know, that our insurance company has also developed partnership with other distributors, you know, which represent, I think, more or less 10% of the revenue. We will continue also, you know. Regarding the expansion of the range of products, I will not comment on the health, and this is not part of the trajectory. On the contrary, we have ambitions regarding all the retirement plans. I think on this topic, we have a lot of... we are legitimate. It makes sense, you know, that's important and a very important need for our client.
Okay, we've just got a lady here with a question.
Good morning. Juliet Nichols-
Hi
... Specialist Sales at Citigroup. Two questions from me, if I could. Just firstly, some detail on the capital walk, please. Your Basel IV headwinds, you'd obviously previously pointed to those being 100 basis points, day one, 20 basis points thereafter, now shown on the slide at 85 basis points. Obviously, your 2023 regulatory headwinds are 20 basis points higher. Can I just ask, what is driving sort of those different movements? And given your expectation of the Basel IV headwind has come down slightly, are there other capital optimization measures that you could potentially look at in the coming years in terms of your capital allocation, to help to bring that Basel IV headwind down further?
And then secondly, if I could, just on the non-cash items that you flagged for the Q3, if I could just ask what's driving the reappraisal of the goodwill in those businesses?
Okay.
I think, you know, it's
Yeah
... you're on.
So I will start with your second question: What drive the decision to impair goodwill is the direct application of the increase from 11% - 12% of the capital assumptions. So, as you know, we make an impairment test on our goodwill, and the direct consequence of this increase is the fact that we made the decision to impair these two goodwills. So coming back to your first question, which is Basel IV and the difference between the 30 and the 50 % of the headwinds we anticipate by the end of the year. So second question, we had...
So the increase by 20 basis points is mainly related to an on-site inspection by ECB, which was a transversal one, on all banks, related to structured products. And it's we had additional and updated feedback on this on-site inspection. And then in a prudent manner, we consider that we should consider this impact by the end of this year. So as you know, regarding ECB inspections, we always have some delays between their inspection and the final impact. But we consider that it's a prudent way to present you our trajectory, to have embarked right now, this impact on, once again, a transversal mission.
Regarding Basel IV, which leads the improvement in our impact is, as I said, during the presentation, we refined the assumptions. We worked quite hard on our impact. ... and then our best estimate, for the trajectory we present today, I mean, between 2023-2026 is 85, the 85, basis points, I shared with you, today. So as you know, the Basel III impacts are not 100% stabilized, there are still discussions from a regulatory standpoint, but as far as today, it's really our best estimate. We still have levers to work on Basel impacts. The last version, of course, of the regulation. We have also capability to work with businesses, in order to optimize the way our businesses are run. But we consider that 85 basis points is the best representation today of the impact.
Just to add on the strategic question you asked, I mean, in the end, you know, the capital is the capital, and the businesses have to cover their cost of equity. And yes, we are constantly reviewing, you know, the post-Basel IV picture for some of the businesses, and we are prepared to make decisions. I mean, we will not keep any business for any reason if it does not meet its cost of equity post-Basel IV. Not one.
Okay, we'll take a last question.
Do we have... I'm sorry, do we have questions online or?
Not at this stage, no.
Okay, perfect.
We take the last question-
Everybody's here.
I will take the gentleman here, given you've already asked questions. Please.
Yeah, thanks. Kian Abouhossein from JP Morgan. Can you just comment on two things? One, on your page, slide 48, your interest rates, GDP forecast. You mentioned GDP is below kind of base rate forecast. That's in the assumptions of the euro numbers. And your interest rates are clearly lower as well. Your Euribor rate at 2% forward, versus 3%. Let's assume we are taking the base assumption that the market is expecting or consensus, what would that mean in terms of your revenue growth forecast, and your potentially even your ROE impact, if you assume those rather than your more conservative assumptions? And then secondly, just on IT expenses, you mentioned EUR 4.5 billion of spend. You're right, it's more than what others spend as a percentage of expenses, EUR 600 million of cost savings.
Just trying to understand the platform improvement, what are you referring to? Front, back office, middle office? How many platforms you have and, and, and how you integrate? And historically, these are very high expense levels, and they seem to drag on when we talk to other banks. Trying to understand how confident are yous in, in, in integrating and achieving those?
All right. So I'll start with this and with also Laura Mather, who you know our CEO, who's gonna complement whatever I say, and then Claire, on your first question. So as I said, hopefully clearly during the presentation, we are. Everybody struggles with this, you know, to some extent, but one, we are above the others, right? And you know, we just have to recognize that, you know, set of circumstances, as we spoke about this earlier. We are higher, and we are higher because of not only, you know, because it just so happened, but also, as I said, because of the way we developed this firm for the last two decades, right? Where you know, the priorities were not the ones of leaner architecture, right?
Simpler product offer, you know, centralized tools for, like, some of the basic piece of technology, right? Just to give you one example, we have two different digital platforms from a infrastructure architecture perspective, right? Which is not necessarily the way to go, right? I mean, Laura's gonna give you her view. So all I'm saying is there's a shift there that is deeper than just, you know, coming up and saying, "You know, let's merge these two applications and move on," right? So there's a deeper cultural shift that needs to happen, and we need to, you know, make it happen, and that's what the plan is. But, Laura, maybe you can give us a little more.
Typically, yeah, outside-in perspective on substance and culture, Laura is one of the examples of that.
Hi. Thanks. Great.
Just on the side.
Go ahead.
Thank you. Thanks very much for the question. I think when... As Slawomir said, the environment's very dissipated, and it's very, very segmented. And I think when we start looking at platforms, if we start at infrastructure as a base level, there's a lot of synergies that you can gather by just putting everybody on the same infrastructure. And so when we're starting looking at platforms, that's the base level we're looking at. And when you ask about whether we have really the ability to do this and what the cost of it is, these programs are already in play at the moment. So there's already work happening to drive this synergization, and these projects have started. So I think we have a level of comfort that we are able to achieve those synergies across the environment.
And then when you look at the next level up, you look at building a development platform. You look at building-
... data and digital tools, and all of these can be shared across the various different business units, and that really drives a whole lot of synergy and cost-saving across the environment.
And-
Yeah.
And if I may, if I may add one point regarding our capacity to deliver, I should mention the IT consolidation we have done on the French retail. You know, this project was delivered on time, on budget, according to a plan. And, you know, it was a very significant operation, and actually, we are proud of it, and I think it demonstrate our capacity to deliver this kind of project.
Very last comment on this, remember what I said, this whole thing is also driven by the portfolio of businesses, and part of it is culture, part of it is the way we worked, part of it is just the portfolio, right? We have X number of countries in International Retail Banking, which basically all operate on their own IT system. You know, before the merger of Crédit du Nord, I mean, just think about it for a second, we ran two retail banking assets on the same market, with the same product suite, the same regulation, that were completely separate, right? So, I mean, there's work to do, but we're gonna do it.
Regarding your question about sensitivity to certain parameters, it's not, it's not possible to answer in a in one sentence and one figure to this type of question, because we have no real sensitivity to one single parameter. It's more a global scenario, which has several impacts on revenues, but also on RWA, regarding potential rating migrations, of course, on costs, on inflation. So we have one parameter that has a direct consequence on the revenues, which is the interest rates and the net interest margin. And we gave you, we provided you with the sensitivity of our positions. It's currently, at the end of August, EUR 28 million for 10 basis points increase, and the opposite for year one, and a little bit more than 50 for year two.
This being said, we have seen in the previous months that for a 10 basis points increase, the sensitivity is not the same than for 200 basis points, notably in the French market, where we have a lot of options that are embedded in the products and that have non-linear impacts. So, in a nutshell, on the interest rates, you have the sensitivity. For the rest of the scenario, it's more a global economic scenario that may have significantly different consequences on the ROE, and, for example, on the inflation.
We have slightly above EUR 10 billion total amount related to salaries, but as I said, we are not always at inflation, we are most of the time below, so you can't have this type of a correlation. So I will confirm the interest rate sensitivity, and for the rest, it's more a global picture than a single sensitivity to one single parameter.
Okay.
And obviously, remember, I mean, generally speaking, obviously, if we have higher rates, it should be, you know, conducive, theoretically, for the retail banking in France. But the problem is, remember, right? What is the assumption you can make for sure on behavioral change and what... how it's gonna affect inventories, you know, if the inflation and the current situation, economic situation is gonna, you know, continue exactly as it is, and people get used to the environment and, you know, make maybe different arbitrage, et cetera. So you have to be, you have to be prudent as well because of the very significant impact of what happens to the inventories on top of rates.
Okay, ladies and gentlemen, with that, the Q&A comes to a close. Thank you. I don't know if,
Thank you. So I just wanna thank you once again, very much for making the trip, you know, and joining us this morning. We're very grateful for this. You know, we know your time is valuable, and you know, let's look forward into the future, and we look forward to interacting with you in the future, obviously, as we did today and as we do every quarter. Thank you very much again, and have a nice day.