EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks reports results for the first quarter of 2012. Jean-Laurent Bonnafé welcome.
Jean-Laurent Bonnafé: Thank you.
EBM:What are your comments on the results of BNP Paribas in the first quarter?
BNP Paribas confirmed a strong profit generating capacity in the first quarter of the year while continuing to successfully implement its deleveraging plan which is proceeding well ahead of schedule. Activity in Domestic Markets remained positive despite a slowing demand, with deposits increasing by 3.6% and loans by nearly 3%. In CIB, Capital Markets showed a significant pick up compared to the fourth quarter of 2011 and were only 4% below the high level of the first quarter 2011. Overall, revenues showed a good resilience amounting to close to 9.9 billion euros while costs remained under control at 6.8 billion euros. Cost of risk was also relatively stable compared to Q1 2011 at a level of 55 basis points as a percentage of customer loans. The first quarter results had two main exceptional items: one positive related to the 1.8 billion euro capital gain on the sale of 28.7% of Klepierre; the other negative, related to the own debt revaluation which impacted the accounts by just over 840 million euros. Hence, BNP Paribas closed the quarter with a net profit of close to 2.9 billion euros which effectively becomes 2 billion if we take out the main one-off elements. Once more BNP Paribas assured value creation for all its stakeholders as confirmed by the increase in book value per share to over 60 euros and in the tangible book value per share to 49 euros.
EBM: Could you comment on the cost of risk evolution by business in the first quarter? How do you see it evolving over the coming quarters?
As I mentioned, cost of risk remained stable at a relatively low level in the first quarter of 2012 in line with the quarterly average of 2011 excluding Greece. In the Domestic Markets both France and Belgium showed moderate levels of cost of risk while in Italy the recessionary environment caused a contained increase. BancWest continued to benefit from the improving economic situation in the US and also Personal Finance confirmed the improving trend seen in recent quarters. CIB’s cost of risk was confirmed at a low level. Going forward, the weakening economic situation in the Euro zone could put some pressure on cost of risk especially in Italy but other business areas such as BancWest and Personal Finance should continue to see some improvement compared to last year. Hence, all in all for this year, and provided the economic environment doesn’t worsen further in a significant way, we expect cost of risk to remain around this level or slightly increase.
EBM: Did you take advantage the recovery in the spreads of sovereign debt since the beginning of the year to further reduce your sovereign exposure?
As we have already said, we are managing our sovereign debt portfolio on an opportunistic basis in order to minimise the volatility of our solvency ratios under the new regulations. We therefore seized some opportunities to continue to reduce exposures mainly in the Euro area. As a result, at the end of April, our sovereign portfolio stood at 66 billion euros. If we just look at Group share, meaning the actual shareholders’ economic risk, the sovereign portfolio stands at 58 billion euros, of which 42 billion euros is to Euro zone countries. The exposure to countries under aid, Greece, Portugal and Ireland, was also reduced and now stands at only just about 1 billion euros.
EBM: How did Q1 go in terms of deposits, and what is the outlook for deposits this year in a context of slower economic growth?
Deposit gathering was quite sustained in the Domestic Markets with growth in each single domestic network. In France deposits were up 3.5% with a positive contribution from current accounts and especially savings accounts. The situation in Belgium was similar with a growth rate of 3.3% driven essentially by retail current accounts and term deposits from corporates. In Italy the efforts put in place to strengthen local funding resulted in a 1.6% increase mostly driven by the considerable increase of deposits from corporates and local authorities. The economic slowdown is obviously putting some pressure on volumes but we think that deposit gathering especially in our Domestic Markets can continue at a reasonable pace this year.
EBM: Loan growth in your Domestic Markets seems to be slowing down, adding downward pressure on revenues. How do you manage this situation in order to preserve profitability?
Effectively loan growth is slowing down compared to previous quarters, essentially due to lower demand from clients. In Italy the recessionary environment is affecting household demand while small businesses, corporates and local authorities continue to show good levels of activity. In France and Belgium the slowdown is less pronounced due to a more favourable economic backdrop. Despite this, Domestic Markets managed to increase its revenues by 0.8% at constant scope this quarter thanks to the commercial efforts of all the networks. It also showed good cost control in all its four markets which led to a 1.5 basis point positive jaws effect and an improvement of the cost income ratio. This successful approach combined with a strong product innovation capacity should ensure that our Domestic Markets remain significant contributors to the Group’s profitability going forward.
EBM: We hear that European banks are not lending for mortgages with maturities beyond 15 years. Is this a consequence of the new NSFR rules forcing banks to match asset and liability durations? As a
result, should we expect slower mortgage loan growth from BNP Paribas going forward?
As far as BNP Paribas is concerned, residential mortgages are part of our commercial approach as they represent a key step in the relationship with clients. However, the bank has always adopted cautious criteria in terms of maturity, loan to value and repayment capacity and as such intends to continue financing its clients. The current economic environment may have an impact on the evolution of mortgage demand but BNP Paribas remains strongly dedicated to financing its clients for their housing projects.
EBM: In Investment Solutions, what were the main highlights of Q1, and what is your update on net inflows? Where do things stand regarding your plans to adapt Investment Solutions to the new environment by streamlining operations?
Investment Solutions performed well following a challenging end to 2011 especially in Asset Management. The rise in equity markets coupled with positive inflows led to a 4.6% increase in assets under management in the first quarter. We actually registered net inflows in all our business lines. In Asset Management inflows were mainly related to money market funds from institutional counterparties.
Private Banking saw a good level of inflows both in the domestic networks and in Asia. Insurance was also positive due to positive flows in France, in Luxembourg and in Asia. Let’s mention also the very good development of the activity of Securities Services. We are adapting the businesses especially in Asset Management where we are proceeding as planned. We are already seeing in this business line some of the benefits as shown by the 8.9% decrease in operating costs compared to Q1 2011. We are at the same time adapting and streamlining costs in all other business units to reflect the changing operating environment while continuing to invest especially in Asia.
EBM: In CIB, following your deleveraging actions, did you witness market share erosion or were you still able to preserve market share or even develop some businesses despite your deleveraging efforts?
In Q1 we have not lost market share in our core business areas. CIB showed a resilient performance in the quarter despite the impact of the ongoing deleveraging. Capital Markets revenues picked up significantly from the lows of the second half of 2011 and were only marginally lower than in the first quarter. In Fixed Income in particular we saw significant levels of primary bond activity and a good performance in rates and forex. We confirmed our number 1 ranking in terms of All Bonds in Euros whilst we entered the top 10 ranking in terms of All International Bonds in US dollars. Corporate Banking revenues were lower as a result of the significant reduction in lending activity in line with our deleveraging plan. Despite this, thanks to the strength and depth of our global client franchise, we successfully protected our positions in our targeted areas. As an example, we ranked first for number of syndicated financing in Europe and third for overall volumes. At the same time we are launching an ambitious deposit gathering plan.This plan will leverage in particular on the development of our global Cash Management platform, where we already rank number 5 worldwide, through a combined offering from CIB and Retail Banking. To conclude on CIB, let me also thank all the CIB staff who have shown this quarter again a great mobilization in order to adapt the businesses and achieve this good performance.
EBM: What is your update today of your stated target of reaching a
Basel 3 fully-loaded Core Tier One ratio of 9% by January 1st 2013?
Should we expect more disposals like that of Klepierre in order to
reach the target on schedule?
I confirm that we are fully committed to achieve our objective and in fact we are proceeding faster than anticipated. As of the end of March, our Basel 2.5 common equity Tier 1 ratio stood at 10.4%, which means an increase of 80 basis points in one quarter. That is to say that if you remove the prudential buffer on sovereign debt, we have an EBA compliant ratio of 10%, far beyond the required level of 9% at the end of June. We have already completed 80% of our deleveraging plan and only have 20% left to do in the remaining three quarters, which gives us time and flexibility to optimize its achievement. We are still awaiting the final text on the CRD4 directive which shall be implemented in Europe but at the same time we have 9 months of organic income generation to add to the equation. In conclusion, we are well placed to achieve our target which shall position us as one of the best capitalised banking groups in the world.
EBM: Since you have recently been appointed CEO of BNP Paribas, what should the market expect the primary focus of your strategy to be: increasing your Retail and CIB activities, or continuing to deleverage the bank?
The primary focus of BNP Paribas remains supporting our clients in all their needs. Due to the new regulatory constraints and as I have just mentioned, we are currently fully committed to our adaptation plan which is already largely achieved. Solvency has been strengthened, the balance sheet is being reduced and we are well on track to achieve our target of being at 9% in terms of fully-loaded Basel 3 Tier 1 on 1st January 2013. We shall hence be one of the best positioned European banks to develop our activities and exploit market opportunities going forward.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much.
Jean-Laurent Bonnafé: You’re welcome.