BNP Paribas, one of Europe’s largest banks, reports results for the third quarter of 2013. Jean-Laurent Bonnafé welcome, you are the CEO of BNP Paribas. What are your comments on the Group’s third quarter results?
Jean-Laurent Bonnafé: BNP Paribas reported a net income of 1.4 billion euros in the third quarter, up 2.4% despite a still challenging economic context in Europe. Looking at the operating divisions, revenues proved to be resilient but were impacted by weak client activity in interest rate markets this quarter. Operating costs were kept well under control as the benefits from our cost saving plan Simple & Efficient continued to accrue. The Group’s cost of risk marked a reduction compared to recent quarters at 55 basis points, confirming the strong risk management of the Group. All Retail networks continued to show significant deposit growth, especially in the Domestic Markets which marked a 4.5% increase. BNP Paribas also confirmed very strong solvency and liquidity in the quarter. In fact the Group’s fully loaded Common Equity Tier 1 ratio under Basel 3 increased to a very high 10.8%. Similarly the immediately available liquidity reserves were further increased to a massive 239 billion euros at the end of September. To conclude, BNP Paribas confirmed solid results in Q3 and continued to create value for its shareholders. In fact our book value per share increased to nearly 63 euros while the tangible book value per share improved to 52.4 euros
EBM: Coming back to your Simple & Efficient plan, could you update us on its implementation?
Jean-Laurent Bonnafé: The implementation of our cost saving plan is proceeding swiftly. In fact at the end of September we had already achieved 549 million euros of recurring cost savings. This means that we have already reached and exceeded our 2013 target of 500 million.
In parallel, we have continued to incur transformation costs which stood at 374 million euros for the 9 months 2013. In Q3 we continued to launch additional projects. At the end of September we had launched almost 1,900 projects, equivalent to approximately 88% of the total number of projects we have identified for Simple & Efficient. To sum up, I am very pleased with the implementation of our Simple & Efficient plan which is progressing very well.
EBM: Regarding cost of risk, could you comment on the evolution in the different businesses and geographies in the third quarter?
Jean-Laurent Bonnafé: As I mentioned before, in the third quarter the Group’s cost of risk marked a reduction in absolute terms compared to both the previous quarter and the previous year. Looking at the different components in greater detail, CIB Corporate Banking showed a low cost of risk, with no particular single file impacting this quarter. In our Domestic Markets, despite the economic context, cost of risk remained low in France and Belgium while in Italy BNL showed stabilization compared to the previous quarters of this year. Our Europe-Med operations showed an essentially stable cost of risk. In the US, BancWest had zero cost of risk this quarter as the already low specific provisions were fully offset by write-backs. And concluding this overview, Personal Finance showed a slightly lower cost of risk in the quarter driven by an improvement in France and Italy.
EBM: Asset quality review could be a challenge for some banks. How confident are you that BNP Paribas can pass the ECB tests?
Jean-Laurent Bonnafé: The ECB announced last week the methodology for its comprehensive assessment of Euro area banks. This will include an Asset Quality Review and a Stress Test. We are pleased to note that the approach adopted by the ECB seems to be very comprehensive and detailed which is consistent with our approach. On the back of the strong risk management shown by the Group throughout the recent crises, and even if some minor fine tuning could be required here or there, I’m confident that we shall be well above the required thresholds. More generally, this review will represent the first step in the implementation of the Single Supervisor in the Eurozone. This is part of a global move towards a single European banking market which is clearly a very positive development and it will lead to further confidence in the European financial system.
EBM: Regarding your Domestic Markets, how do you view their performance this quarter?
Jean-Laurent Bonnafé: In the third quarter, Domestic Markets continued to show significant deposit growth combined with a moderate loan reduction. Deposits reached 292 billion euros, increasing by 13 billion with an annual growth rate of 4.5%. This was driven by good growth in all the networks and in Cortal Consors in Germany. On the other hand, the slowdown in credit demand continued. Our new fully mobile bank “Hello bank!” is gaining new clients in Germany, Belgium and France. And, as scheduled, it started to operate in Italy earlier this week. In a context of subdued economic activity, Domestic Markets achieved close to 4 billion euros of revenues. This was helped by a continuing pick-up in financial fees and by the good contribution of Arval, which offset lower loan stocks. The ongoing focus on cost control resulted in a further reduction of the cost base. Operating costs marked a 1.2% contraction net of development costs for the launch of Hello bank!. This led to an improvement in the cost/income ratio of all the networks. Gross operating income improved by over 4% net of the Hello bank! costs while pre-tax income exceeded 900 million euros this quarter. In conclusion, I would say that Domestic Markets showed a very resilient performance on the back of improving operating efficiency.
EBM: If we now look at your retail banking in the Europe Mediterranean region, could you comment on the main trends seen this quarter?
Our Europe-Med division continued to show good commercial and marketing drive with sustained volume growth especially in Turkey. Deposits were up nearly 11% while loans progressed by 9%. The quarter was marked by significant currency fluctuations, notably that of the Turkish Lira. Hence, to get a proper idea of the underlying trends, I will refer to P&L changes at constant scope. Revenues were up 2.4% despite the impact of new regulations in Turkey and Algeria. Costs increased essentially due to continuing investments in the commercial set-up, in particular in Turkey. On the other hand, this was partially offset by ongoing actions to improve operating efficiency. Overall, thanks to an essentially stable cost of risk and an improving contribution from Bank of Nanjing, Europe-Med closed the quarter with a pre-tax income just below the previous year. However, looking at the evolution of the first 9 months, pre-tax income increased by nearly 60% exceeding 400 million euros.
EBM: Your strategy in consumer finance has been to develop joint ventures, in Russia, Germany or China for example. How effective has this strategy proven? How is Personal Finance performing in the current environment?
Jean-Laurent Bonnafé: As part of its development strategy, Personal Finance has put in place several joint-ventures and commercial agreements with leading partners in the business world. In Germany, for example, we have a successful joint venture with Commerzbank which allows us to rank third in point of sale consumer lending. And we have bolstered our presence in point of sale financing in Russia by joining forces with Sberbank. More recently we have entered into a partnership with Bank of Nanjing to develop consumer lending in China. And our partnership agreement with the supermarket chain Cora in France is now operational. Today Personal Finance operates in more than 20 countries spread over 4 continents and is increasingly diversifying its consumer finance revenue sources. This dynamic development was also visible in the Q3 results. In fact revenues were a bit lower essentially due to the ongoing reduction of mortgages as part of the adaptation plan. On the other hand, consumer credit benefitted from a good drive particularly in Germany and Belgium but was still impacted by recent regulations in France. Costs were substantially lower benefitting from the adaptation plan. As a result the cost/income ratio improved further to 44%, a very competitive level. In conjunction with the slight improvement of the cost of risk I mentioned earlier, Personal Finance closed the quarter with over 320 million of pre-tax income, confirming the significant profitability of this business.
EBM: As for many of your competitors, your CIB revenues have been hampered by weak Fixed Income in Q3. Could you comment on your Capital Markets activities? And still in CIB, how has your Corporate Banking performed?
Jean-Laurent Bonnafé: CIB revenues in Q3 were a little over 2 billion euros, decreasing by 10.7% year on year on a comparable basis. In line with what you said, revenues were hampered by weak client activity in interest rate markets. Revenues in our Capital Markets were actually impacted by the wait-and-see approach of investors pending market uncertainties such as the Fed’s tapering. And our VaR was at a very low level this quarter. When looking at Fixed Income we must bear in mind that Q3 last year had been positively impacted by Mario Draghi’s OMT announcement. Having said that, in Q3 client activity in interest rate markets was low while Credit activity performed well. At the end of September, we strengthened our leading positions in bond issuance. In fact we climbed to number 2 for “all bonds in Euros” and confirmed our number 8 ranking for “all international bonds”. Equity & Advisory performed well, showing higher client volumes on equity derivative markets. This was particularly the case in Europe. We also saw renewed client interest for structured products. Equity-linked performed quite well and we ranked number 3 for issues in Europe. If we now look at Corporate Banking, revenues were still affected by the reduction of outstanding loans resulting from the 2012 adaptation plan. However, in line with our development plan in Asia, we continued to grow our revenues in this region. In syndicated loans we confirmed our top positioning in Europe with leading positions in all the main sectors. On the funding side, deposits reached nearly 59 billion euros, marking a 10% increase on the previous year thanks to deposit gathering and development of our cash management offer. In fact in cash management we have continued to gain significant new mandates and at the end of September we improved our global ranking with corporates to number 4. On the credit side, outstandings are stabilizing while Corporate Banking is continuing to develop the Originate to Distribute approach. To sum up, we’re proceeding with the roll-out of the new business model.
EBM: Your Investment Solutions has continued to grow this quarter. Which are the areas sustaining this performance?
Jean-Laurent Bonnafé: Investment Solutions had a good quarter. Assets under management increased slightly to 874 billion despite limited net outflows which came essentially from bond funds in Asset Management. On the other hand, we saw good net inflows in Wealth Management and in Insurance, notably from Asia and domestic networks in both cases. In Q3 we continued to pursue our global development as depicted by the new bancassurance partnership signed by Cardif with Saïgon Commercial Bank in Vietnam. In terms of revenues this translated into a 5% increase at constant scope with a positive contribution from all 3 business lines. Insurance revenue growth was driven by savings activity this quarter. Wealth & Asset Management saw a good overall performance while Securities Services revenues were up thanks to higher transaction volumes and assets under custody. Operating costs increased at a lesser pace than revenues. In Insurance costs were up due to the increasing levels of activity while in Wealth & Asset Management this was mostly related to selective investments linked to the Asset Management plan. Securities Services confirmed good cost control with only a marginal increase compared to the previous year. Overall, at constant scope gross operating income increased by over 11% and pre-tax income for the quarter topped 500 million. So, I would say that all the different businesses contributed to the good performance of our Investment Solutions in Q3.
EBM: Finally, do you have any update on the preparation of your new business development plan?
Jean-Laurent Bonnafé: The preparation of our new business development plan is progressing well and is nearing completion. To date, we have released a few plans in areas and businesses where it was important to move quickly and where the rules of the game were sufficiently clear. The next step will be the global presentation. We shall provide the main Group targets with our full year results in February and we will follow this up with an Investor Day in Paris towards the end of March when we shall illustrate the plan in greater detail. See you then!
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
