EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks, reports 2019 first quarter results. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas.
Jean-Laurent Bonnafé: Thank you!
EBM: What are the highlights of the Group’s first quarter results?
Jean-Laurent Bonnafé: In the first quarter, business activity progressed in the three operating divisions. At the beginning of the quarter the market backdrop was still affected by the extreme market conditions seen at year-end 2018 but showed an improvement towards the end of the period.
Group revenues were up 3.2% compared to the first quarter 2018, or +3.9% at constant scope & exchange rates. Revenues of the operating divisions progressed by 4.4% on the back of a slight reduction in Domestic Markets, a significant rise in IFS and an increase in CIB driven by the pick-up in client activity during the quarter.
Group costs were up 2.3% compared to the first quarter 2018 delivering a positive jaws effect. At constant scope & exchange rates and excluding the 1.1 billion euros’ impact of annual taxes & levies that is almost fully accounted in Q1, they were up 1.2%, accompanying the uptick in business activity.
Group cost of risk was still at a low level, at 38 basis points. It was higher than the first quarter of last year which had been particularly low due to write-backs in CIB and Personal Finance.
After taking into account the capital gain on the sale of 14.3% of SBI Life and goodwill depreciation, the Group’s net result stood at a good level of 1.9 billion euros, up 22.4% on the same quarter last year. Annualised Return on Equity excluding exceptional items was 9.7% or 11.2% in terms of Return on Tangible Equity.
The Group’s book value per share increased to 76.7 euros showing an annual growth rate of 5.2% since year-end 2008 and confirming the recurrent value creation through the cycle.
So, a good quarter for the bank.
EBM: In the current challenging low interest rate environment, what progress have you made on the costs side and can you share an update on the implementation of your digital transformation plan?
Jean-Laurent Bonnafé: As part of the update of our 2020 plan that we provided back in February, we announced 600 million euros of additional recurring cost savings from 2020, therefore increasing the cumulated total cost savings for the Group to 3.3 billion euros from 2020. In the first quarter we achieved 169 million euros of cost savings bringing the cumulated total already generated to 1.3 billion euros since the start of the plan. We plan to deliver a further 0.5 billion cost savings this year and 1.5 billion in 2020.
Concurrently, our transformation costs have been reduced this quarter to 168 million euros.
What this means is that we’re on track to deliver the targets of our transformation plan with significant cost benefits coming both in 2019 and in 2020 that will help generate positive “jaws” in each operating division starting from this year.
Regarding the digital transformation, which as you know is at the core of our 2020 plan and help us deliver cost savings, we’ve been quite successful in adapting to our clients’ changing needs and we’ve already achieved a lot in terms of providing new customer experiences and a more effective and digital bank.
Thanks to that, in Domestic Markets for instance the number of active mobile users in the networks has increased by 20% compared to the first quarter last year with an average of 19 monthly connections.
Client experience is being optimised everywhere with for example over 50% of contracts signed electronically worldwide at Personal Finance.
Alongside new customer experiences, we’re developing robotics and artificial intelligence. By way of example, we already have a total of over 500 robots operational in our businesses contributing to the automation of processes, reporting and controls.
Overall, we’re making very good progress in implementing our digital transformation plan throughout the Group.
EBM: Looking at your Eurozone retail banking, how have the different business lines performed this quarter?
Jean-Laurent Bonnafé: Our Domestic Markets showed increased business activity in the first quarter with good loan growth in the retail networks as well as in the specialised businesses combined with higher deposits in all geographies.
Domestic Markets is continuing to simplify and optimise its branch networks in order to improve client service and reduce costs. Since year-end 2016, we’ve closed 289 branches in France, Belgium & Italy and we’ve successfully delayered the regional set-up in the French network last year.
Domestic Markets is also actively implementing the transformation of its operational model by simplifying and digitalising end-to-end its main customer journeys as well as automating its processes.
In terms of P&L, revenues were just slightly lower at close to 4 billion euros on the back of the low rate environment and the impact on financial fees at the beginning of the quarter of the still unfavourable market conditions however progressively picking up. This was partly offset by the increased business activity that I mentioned and the good drive of the specialised businesses.
Operating costs were a bit higher due to the continued development of the specialised businesses which however displayed a positive jaws effect. In the retail networks costs continued to decrease. On a like-for-like basis, Domestic Markets showed this quarter a positive jaws effect.
Cost of risk remained low but was higher than in the first quarter 2018 which was at a very low level, and BNL continued to decrease. On the back of this, pre-tax income stood at 608 million euros, marking a 7.6% reduction.
To sum up, our Domestic Markets saw higher business activity and revenue resilience despite the low interest rate environment and the impact at the beginning of the quarter of the fall in markets at the end of 2018.
EBM: You’ve recently expanded your footprint in Poland: how is the integration of the new entity progressing? More generally, how has your international retail banking fared?
Jean-Laurent Bonnafé: The integration of the core banking activities of Raiffeisen Bank Polska that we acquired last year is progressing well. The resulting new entity in Poland has now become BNP Paribas Bank Polska and will operate under the BNP Paribas brand in Poland. We’re actively implementing the cost synergies and closed 97 branches this quarter as part of the branch network rationalization in the country.
More broadly on Europe-Med, business activity showed loan growth especially in Poland & Morocco and deposit growth driven by Turkey.
We’re continuing to strengthen our digital offering and today we already have 2.5 million digital customers in Europe-Med’s geographies.
In terms of P&L at constant scope & exchange rates, revenues were up 12% on the back of higher volumes and margins as well as a good level of fees. Costs were a tad lower reflecting good control and the initial synergies from the integration in Poland. This led to a largely positive jaws effect this quarter. Overall, given an essentially stable cost of risk, Europe-Med’s pre-tax income was up 76% in 1Q19 on a comparable basis. However, at historical scope & exchange rates pre-tax income was down slightly due to the strong depreciation of the Turkish lira and the high base of non-operating items in the first quarter 2018.
Turning to US retail banking, at constant scope & exchange rate BancWest showed moderate loan growth compared to last year whereas deposits were stable.
Private banking’s assets under management increased by 8% to stand at 14.3 billion dollars. And on the digital front, BancWest opened nearly 15,000 accounts on line in the first quarter, 61% more than in the first quarter 2018.
Still at constant scope & exchange rate, revenues were down 1.7% due to lower interest income partly offset by higher fees. Costs were kept well under control and decreased by 1.1% thanks to headcount reduction and the transfer of some support functions to Arizona, a lower cost state. On the whole, given a still low cost of risk, BancWest’s pre-tax income decreased by 10.7% on a comparable basis. Given a favourable FX effect, it was just -1.5% at historical scope & exchange rate.
So, in a nutshell for our international retail banking, good overall performance with largely positive jaws for Europe-Med and good cost control for BancWest.
EBM: Consumer lending is a thriving business in the current low rate environment. What are the first quarter highlights for your Personal Finance business?
Jean-Laurent Bonnafé: Personal Finance continued to show good business drive in the first quarter. Outstanding loans were up 12% thanks to still high demand and the positive effect of new partnerships.
The business line launched the new C-Pay card in France, a card associated with a revolving credit which provides amongst other things significant flexibility in terms of repayment options. In terms of partnerships, Personal Finance signed a new commercial agreement in Germany with the leading price comparison provider, Check 24, to distribute a credit card with revolving credit.
Looking at the results, revenues progressed by more than 5% in connection with higher volumes and the positioning on better risk products. Costs grew by 6% as a result of business development; however, thanks to the gradual effect of the cost saving measures through the year, Personal Finance confirms its target of positive jaws for the full year.
Cost of risk was at a low level but was up compared to the first quarter of 2018 which had benefited from provision write-backs. Hence, pre-tax income reached 340 million euros, down 8.6% on last year.
To recap, Personal Finance continued to show good business drive in the first quarter of the year.
EBM: Your savings businesses were affected by the sharp market drop at the end of last year. How have they performed in this first part of the year?
Jean-Laurent Bonnafé: The total assets under management of our savings businesses marked a significant rise in the first quarter compared to year-end 2018 to stand at 1 trillion 75 million euros at the end of March. In the first quarter we actually saw a largely positive performance effect related to the rebound of financial markets while net asset inflows were mitigated by the still challenging context at the beginning of the quarter.
Taking the Insurance business first, it continued to show good business activity with sustained inflows into unit-linked policies and a good performance of savings & protection insurance internationally. The business line is making a strong commitment to the energy transition with a target of 3.5 billion euros in green investments by end-2020.
In terms of results, Insurance revenues increased by 32% on the back of the strong rebound of financial markets compared to year-end 2018 – as part of the assets are marked-to-market – and a good level of business activity. Costs were up 6% reflecting business development and delivering positive jaws. Hence, pre-tax income marked a near 41% increase to stand at 520 million euros in the first quarter.
Turning to Wealth & Asset Management, this business line was actually impacted by the unfavourable context at the beginning of the quarter following end of last year’s market drop.
In terms of activity, Wealth Management was awarded the “Best European Private Banking” prize for the third consecutive year, Asset Management continued to simplify its organisation and launched its global sustainability strategy, and Real Estate made good progress in real estate funds management especially in France and Germany.
In terms of P&L, revenues were down 3.7%, impacted as I mentioned by the lingering effects of the sharp fall in markets in the fourth quarter, which were reflected in low transaction levels by Asset Management and Wealth Management clients, as well as by a high comparison base in Real Estate the previous year. However, there was a gradual upturn in business activity towards the end of the quarter. Costs increased by 4.4%, or 3.7% excluding the impact of IFRIC 21 this quarter. They increased mostly on the back of development costs of our Wealth Management for example in Germany and the industrialisation costs in our Asset Management. As a result, pre-tax income was 29% lower in the first quarter.
To wrap up, significant rise in assets under management for our savings businesses in the first quarter with strong income rise in Insurance but impact of the unfavourable context at the beginning of the quarter in Wealth & Asset Management.
EBM: Your CIB business was also impacted by unfavourable market movements in the last part of the year. What can you tell us about the performance of CIB’s different business lines this quarter?
Jean-Laurent Bonnafé: CIB marked an upturn in client activity despite a still unfavourable market context at the beginning of the quarter. The operating division was well prepared for this upturn leveraging the transformation implemented last year. It is implementing the announced amplification of this transformation with the creation of the platform Capital Markets joining the forces of Corporate Banking & Global Markets to cater for corporate clients’ financing needs, the discontinuation of Opera Trading proprietary activities and of the commodity derivatives business in the US, as well as the implementation of new cost savings.
In Q1, CIB’s revenues stood at 3 billion euros, up 3.5% compared to the first quarter 2018.
Taking the business lines one at the time, Global Markets’ revenues increased by 1.7%. Net of the transfer of activities related to the set-up of the new Capital Markets platform, revenues progressed by 3.8%. The first quarter saw a contrasted performance with increased activity on rates markets in Europe and a gradual normalisation of equity markets following the extreme market conditions at the end of last year.
As a result, FICC revenues were 28.5% higher, or +32.4% excluding the set-up of the Capital Markets platform, with a strong performance in all segments most notably on rates and forex. We confirmed our strong positions on bond issuance where we ranked number 1 for all bond issues in euros as well as for green bonds and number 7 for all international bonds.
Equities revenues were down 29.5% compared to a high base in the first quarter 2018 but marked a strong rebound compared to the fourth quarter 2018. During the quarter the normalisation of inventories’ valuations compensated the recovery in client activity that occurred only gradually through the quarter.
Looking at Securities Services, revenues were quasi-stable at 516 million euros, reflecting the slight decrease in the number of transactions and the deferred impact of new mandates. Indeed, Securities Services continued to gain new mandates, as for instance with the online broker CMC Markets across 11 countries in Asia-Pacific.
Finally, Corporate Banking revenues increased by 8.6%, or 5.2% excluding the set-up of the Capital Markets platform, with an increase in all regions and continued growth of cash management & trade finance where the business line confirms its leading positions in Europe. Corporate Banking also confirmed strong positions in syndicated loans where it ranked number 2 for the EMEA region.
Turning to total CIB costs, they were up 3.1% due to scope increases in Securities Services and increased business activity, generating a 0.4 point positive jaws effect. Costs were up just 0.8% at constant scope & exchange rates and benefitted from the cost efficiency measures, which generated 65 million euros of savings this quarter, deriving from the increased use of shared platforms, the implementation of end-to-end digitalised processes and the automation of operations.
On the back of this, gross operating income was up 5.5% this quarter.
Cost of risk remained low but increased compared to the first quarter 2018 where it had net write-backs. Hence, CIB generated 514 million euros of pre-tax income, marking a 7.9% decrease versus the first quarter 2018 which had benefited from provision write-backs.
So, as you could see, a good performance overall for our CIB which is benefitting from the amplification of its transformation and the good development of its customer base.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
