EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks, reports 2017 full year results. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas. What are the highlights of the Group's full year results?
Jean-Laurent Bonnafé: The Group delivered a good performance in 2017 in a progressively improving economic context in Europe, and despite the low rate environment and lacklustre markets.
Revenues of the operating divisions progressed by 1.5% despite an unfavourable FX effect. They were up 2.6% on a comparable basis with good business development in all business lines. Domestic Markets were essentially stable with healthy volume growth but still low rates, while the IFS and CIB divisions marked good increase.
Costs of the operating divisions progressed at a lesser pace than revenues, reflecting good cost control thanks to the operating efficiency plan, with a positive jaws effect in all the divisions.
At the same time, we’ve been actively implementing our transformation plan with 0.9 billion euros of transformation costs booked in 2017.
Cost of risk at Group level was significantly lower standing at 39 basis points driven by a reduction in most business lines.
The Group’s net result stood at 7.8 billion euros, progressing by 4.4% excluding one-offs. This translated into a Return on Equity of 9.4% excluding one-offs. The Return on Tangible Equity reached 11% net of one-offs. The Group’s Earnings per share progressed to 6.05 euros per share.
In terms of financial structure, the Group is well capitalised and the fully loaded Common Equity Tier 1 ratio reached 11.8% at year-end, up 30 basis points compared to last year.
And, last but not least, for the full year 2017 we have proposed a dividend payment of 3.02 euros per share, in line with the 50% pay-out target of our 2020 plan and up 11.9% versus last year.
All this confirms a promising first year of our 2020 business development plan.
EBM: Loan demand across the Eurozone has significantly picked up on the back of strong economic growth. How have your Domestic Markets fared in this context?
Jean-Laurent Bonnafé: Domestic Markets showed good business drive in 2017 on the back of robust economic growth in the Eurozone and pick up in loan demand. In fact we saw good loan growth in all the networks and in the specialised businesses as well as a continued increase in deposits in all countries.
The assets under management of our Private banking confirmed a good trend marking a 4.2% increase compared to the year before.
And Hello bank! has continued to grow its client base which reached 2.9 million at the end of 2017, representing now 11% of individual clients’ revenues excluding private banking.
We’ve been actively implementing our 2020 plan in our Domestic Markets,successfully strengthening the commercial approach through new client experiences, improving the product offer and making available new services.
We’ve adapted to clients’ expectations by proposing diversified service models. In France for example we have completed our offer to different banking uses with the acquisition of Compte-Nickel in July 2017. Compte-Nickel has continued to expand at an impressive pace, increasing the number of accounts opened by 29% versus 2016 to stand at 800,000 accounts at the end of 2017.
We’ve also been speeding up clients’ use of mobile banking services by launching new mobile apps and expanding features. In fact we’ve seen a +38%increase in the number of contacts via mobile apps in the 3 networks to 51 million in December 2017.
We’ve also been releasing innovative products such as the universal mobile payment solution Lyfpay, the online platform for individual customers Arval for me and the B-to-B marketplace Kintessia for our Leasing Solutions clients.
Finally, we’ve continued to upgrade the operational model in order to enhance efficiency and client service with the delayering of the 3 networks and, alongside this, the continued optimisation of the branch network.
In terms of P&L, revenues were stable at 15.7 billion euros. As mentioned, we saw good business drive in our domestic markets but we continued to be impacted by the low interest rate environment. Commission income marked an increase in all the networks.
Operating costs were a tad lower and looking at just the 3 large retail networks, costs were actually down 1.4% on average.
Given the continued reduction in cost of risk in particular at BNL in Italy, pre-tax income topped 3.5 billion euros, marking a 4.7% increase.
As you can see, quite a dynamic year for our Domestic Markets with good business drive and higher income, despite the headwind of the low rate environment.
EBM: Still on Retail, your International Financial Services division was highlighted as a growth engine for the Group in last year’s Investor Day. What colour can you provide on its first year of the plan?
Jean-Laurent Bonnafé: In 2017 all International Financial Services’ business lines showed dynamic business activity with very good business drive for Personal Finance which also completed the acquisition of General Motors Europe financing activities, continued growth in International Retail Banking and increased the Assets under Management of Insurance and Wealth and Asset Management.
We’ve been actively implementing our 2020 plan in International Financial Services. We’ve continued to strengthen our specialised businesses’ competitive positions, to step up their development through new partnerships and new offers and to grow our retail banking beyond the Eurozone.
In greater detail, we’ve forged new growth-enhancing partnerships in Personal Finance, such as with Masmovil in Spain or TUI in France, and in Insurance, for example extending the partnership with Volkswagen Financial Services.
We’ve optimised client experience with the release of new features in the Wealth Management client portal and the roll-out of the e-signature in Personal Finance.
We’ve also continued to develop new technologies and business models as showed by the acquisition by Asset Management of Gambit, a leading European provider of robo-advisory investment solutions, and the launch by Personal Finance of new digital banks branded Hello bank! by Cetelem.
Finally, we’ve pursued industrialisation and operating efficiency improvement with for instance the implementation by Asset Management of a new outsourcing solution, Aladdin.
IFS has also finalised several bolt-on acquisitions in 2017 that will strengthen growth perspectives of the businesses. The most sizeable acquisition was the financing activities of GM Europe that our Personal Finance acquired jointly with PSA Group. Moreover, Personal Finance got a foothold in the Swedish consumer credit market by acquiring Sevenday Finans while the Insurance business bought the remaining 50% of Cargeas in Italy and Real Estate Services purchased Strutt&Parker in the UK. These acquisitions should contribute an additional 720 million of revenues by 2020 and about 280 million of additional pre-tax income.
At constant scope & exchange rates, IFS revenues were up 4.8% with an increase in all the businesses while costs progressed by 3.7%, delivering positive jaws. Given a reduction in the cost of risk this year, IFS’ pre-tax income increased by over 12% to stand at 5.8 billion euros.
In a nutshell, IFS delivered good business development and a strong rise in income, laying the foundation for further growth through the growth enhancing initiatives finalised during the year.
EBM: Within IFS, how have your international retail networks performed in 2017?
Jean-Laurent Bonnafé: Starting with Europe-Med, business activity continued to show good growth with loans up in all regions and deposits also marking good progress.
Our digital banks in this area confirmed their good development with Cepteteb in Turkey attaining 475,000 clients and BGZ Optima in Poland 210,000 clients.
At constant scope & exchange rates, revenues were up 2.3% with an increase in all regions on the back of the volume growth I mentioned. They were still impacted by the higher rates on deposits in Turkey which have not yet been offset by the gradual loans repricing. Costs increased as a result of the good business development. Overall, given a lower cost of risk, Europe-Med’s pre-tax income was up 23.6% in 2017. At historical scope and exchange rates, it was 9% higherdue to the unfavourable forex evolution.
Moving to US retail banking, BancWest confirmed good business drive in 2017. Loans were up over 6% driven by both individuals and corporate lending while deposits increased by close to 10% compared to last year.
On a comparable basis, the assets under management of our private banking marked a further progress of 11.4% on last year to stand at 13.1 billion dollars. And on the digital front, BancWest’s mobile banking services topped 415,000 users marking a 15% increase over the year.
BancWest also continued to foster cross-business co-operation with the rest of the Group. By way of example, the implementation of the One Bank for Corporatesapproach is well under way as Bank of the West becomes the overall cash management provider for the Group in the US.
At constant scope & exchange rates, revenues were up 2.4% which becomes over+5% excluding gains on securities and loan sales which had been material in 2016.
Costs were kept well under control and BancWest generated a positive jaws effect .On the whole, given a still very low but slightly higher cost of risk, BancWest’s pre-tax income was 1.5% lower than last year. Given unfavourable FX effect, it was actually -3.7% at historical exchange rate but +5.5% excluding capital gain effect.
So, BancWest showed in 2017 a solid operating performance.
EBM: Your consumer finance business has been a strong performer. What are the highlights for Personal Finance in 2017?
Jean-Laurent Bonnafé: Personal Finance delivered another dynamic year with the signing of new partnerships and the acquisition in particular of GM Europe’s financing business as I mentioned before. Outstanding loans were up over 12% thanks to higher demand across Europe on the back of the favourable economic backdrop and the positive effect of the new partnerships.
Personal Finance continued to innovate its product offer as illustrated for example by new credit card features and more flexible renewable accounts in several countries. It also forged ahead with its digital development, as shown by the launch of the first Hello bank! by Cetelem in the Czech Republic in November, leveraging on its sizeable client base.
In terms of results, revenues reached 4.9 billion euros progressing by 5% at constant scope & exchange rates, in connection with good volume growth and the positioning on products with a better risk profile. Revenues progressed particularly well in Italy, Belgium and Spain.
Costs progressed on the back of the increased level of activity but at a lesser pace than revenues, meaning positive jaws.
Cost of risk was at a low level and pre-tax income reached 1.6 billion euros, up 10.5% on last year at constant scope & exchange rates.
To sum up, in a favourable context in Europe, Personal Finance continued to show a very dynamic business drive with good revenue growth and higher income generation.
EBM: How have your assets under management evolved in 2017? What has been the P&L evolution of your savings & insurance businesses in the year?
Jean-Laurent Bonnafé: The Group’s total assets under management stood at 1,051 billion euros at the end of the year, thanks to good net asset inflows in all our businesses and a positive performance effect which was only partly offset by an unfavourable foreign exchange effect. In fact, over the past 3 years our assets under management have increased by 157 billion euros with close to two thirds coming from net asset inflows.
Taking the Insurance business first, it continued to show good business development both in terms of savings and protection insurance. Net asset inflows were concentrated in unit-linked policies and helped boost assets under management to 237 billion euros.
In 2017 the Insurance business finalised the IPO of SBI Life in India through which we sold a 4% stake which generated a 326 million euros capital gain. We retain a 22% stake worth some 2 billion euros at current market prices.
We also continued to foster the international expansion of Cardif by developing and strengthening partnerships with for example Sumitomo Mitsui in Japan or Itau in Chile.
Insurance revenues were 5.6% higher due to the good business development and the favourable markets trend.
Costs accompanied the development of the business and, overall, pre-tax income marked a 36% increase to stand at nearly 1.9 billion euros in the year. This was boosted in particular by the SBI Life capital gain. At constant scope & exchange rates pre-tax income progressed by 9%.
Turning to Wealth & Asset Management, it also showed good business activity across the board. The Asset Management business adopted the brand “BNP Paribas Asset Management” in the course of the year and pursued its digital transformation by acquiring a majority stake in Gambit as I said earlier.
Also, Wealth Management’s expertise was awarded “Best Private Bank in Europe and in Asia” and Real Estate Services enjoyed good business activity.
In terms of P&L, Wealth & Asset Management revenues progressed by a strong7.3%. Costs were well contained, leading to a largely positive jaws effect. As a result, pre-tax income marked a 31% improvement to stand at 0.9 billion euros.
To wrap up, continued business growth with a sharp rise in income for our Insurance business and a very good overall performance in our Wealth & Asset Management in 2017.
EBM: Market conditions have been less favourable in the second part of the year for CIB activities. Could you tell us how the different businesses of your Corporate & Institutional Banking fared in 2017?
Jean-Laurent Bonnafé: Our CIB continued to make good progress in the implementation of its transformation plan, strengthening competitive positions, reaping the benefits of cost saving measures and launching digital transformation initiatives.
In 2017 CIB has successfully expanded its client base with corporates, especially in targeted markets like Germany, onboarding across Europe over 125 new client groups. The same is true with institutionals.
CIB has entered into new growth enhancing initiatives such as partnerships with GTS in the US to strengthen Global Markets’ offer as well as with Symphony which is a secure and automated communication platform for institutional clients.
CIB has also accelerated its digital transformation with 150 digital projects identified and the continued development of digital client interfaces like Centric, the online platform for corporates which is already used by 8,200 corporate clients.
Looking at the P&L, revenues stood at 11.7 billion euros, up 2.1% despite an unfavourable foreign exchange effect. At constant scope & exchange rates they were up 3.8% and this despite a challenging market environment in the second part of the year, as you correctly point out.
Taking the business lines one at the time, Global Markets’ revenues were 0.8% higher at constant scope & exchange rates. FICC client activity was affected by the challenging market conditions in the second half of the year leading to an 8.6% revenue decrease in 2017. In this lacklustre market context, we retained our top ranking on all bond issues in euros and ranked number 9 for all international bond issues. Equities revenues, on the other hand, showed strong growth of +20.9% on the back of a pick-up in the equity derivatives business and a good performance of Prime Services.
Looking at Securities Services, revenues progressed by 8.3% at constant scope & exchange rates on the back of strong growth in assets under custody & under administration in conjunction with higher transaction levels. Securities Services continued to gain very significant new mandates in 2017. In particular in the US it announced recently a major strategic partnership with Janus-Henderson.
Finally, Corporate Banking revenues were up 6.1% at constant scope & exchange rates on the back of good growth in Europe, a strong rise in the Asia Pacific region and good level of activity maintained in the Americas. Transaction banking marked good growth especially in Europe. The business consolidated its leading position in Trade Finance in Europe and entered the top 3 in Asia for the first time.
Turning to total CIB costs, they were a tad lower and evolved by +1.8% at constant scope & exchange rates, resulting in a 2 point positive jaws effect. They benefitted from the cost efficiency measures that we’ve been implementing in the CIB division since 2016 and resulted in a 1.7 point improvement of the cost/income ratio.
Cost of risk decreased sharply compared to last year despite the impact of two files in the fourth quarter. Overall, CIB generated 3.4 billion euros of pre-tax income, marking a strong +15.7% increase at constant scope & exchange rates compared to last year.
So, to sum it up, our CIB made good progress in its 2020 plan showing solid business growth and operating efficiency improvement leading to a strong rise in income in 2017, all this despite a lacklustre market context in the second part of the year.
EBM: Do you see any knock-on effect from the tax reform package recently passed in the US?
Jean-Laurent Bonnafé: We only had marginal deferred tax assets in the US as we never incurred significant losses there; hence the overall fiscal impact for the Group was negligible in the fourth quarter 2017.
Going forward, the Group generates something like 10% of its pre-tax income in the US and it will definitely benefit from the tax reform package passed in the US last December.
EBM: You’ve given us some colour on the first year of your 2020 business plan in the business divisions. What’s your overall view on its implementation?
Jean-Laurent Bonnafé: The Group is forging ahead with the active implementation of its 2020 plan in a macroeconomic environment that is becoming more and more favourable on the back of robust GDP growth expectations in Europe and a rate environment that should improve going forward.
Leveraging the Group’s integrated and diversified business model, our plan centres on an ambitious transformation plan in all the operating divisions together with differentiated development strategies by division while complying with an ambitious Corporate Social Responsibility policy.
Across all its business lines, the Group is implementing an ambitious programme of new client experience, digital transformation and operating efficiency improvement.
As you know, we have identified 5 levers that we’re implementing across the different divisions to achieve our programme. Taking them quickly one at the time they are:
1) rolling out new customer journeys with new services and digital experience: examples of this are the new universal payment solution Lyfpay, the acquisition of Compte-Nickel or the continued development of Centric, CIB’s online platform;
2) evolving the operating model by optimising processes, simplifying the organisation and developing shared platforms: a meaningful example is the announcement of the rollout of Aladdin platform in our Asset Management;
3) upgrading IT systems by integrating new technologies, as illustrated by the development of Data Hubs providing an interface between banking and digital platforms;
4) improving data usage: the acquisition of Gambit in the robo-advisory contextis an example of our initiatives in this area; and
5) developing more digital and agile working methods with for example the planned roll out of the innovative communication platform Symphony.
At Group level we plan to invest 3 billion euros between 2017 and 2019 to achieve this programme which will generate 3.4 billion euros of cumulated cost savings over the same period, and 2.7 billion of recurrent cost savings from 2020 with a balanced contribution from all the operating divisions.
In 2017 transformation costs stood at 856 million euros with a gradual pick up over the year and we generated 533 million of cost savings, in line with our plan.
In our three operating divisions we’ve successfully started implementing the differentiated development strategies as I’ve illustrated before.
Their successful implementation in the first year of the plan is clearly illustrated by the strong increase of pre-tax income in the three operating divisions: +4.7% for Domestic Markets, +18.2% for IFS and +14.6% for CIB.
EBM: Given all that you’ve said, do you feel that you’re progressing in line with expectations?
Jean-Laurent Bonnafé: As you know, our plan is built on conservative macroeconomic assumptions.
As you’ve seen, it has got off to a promising start in 2017.
We’re confirming our 2020 Group targets with revenue growth of at least 2.5% per annum and recurrent cost savings of 2.7 billion euros from 2020, leading to an improvement of the cost/income ratio to 63%. In addition, as planned, the dividend pay-out ratio has been increased to 50% from 2017.
Moreover, the combination of stronger economic growth in Europe, higher implied interest rates and lower taxation in the US, in France and in Belgium, mean if confirmed, that we’re expecting now to beat the target of a Return on Equity of 10% in 2020 based on a 12% Common equity Tier 1 ratio.
To wrap up, I would say that the good start of the first year of our plan has laid the foundation for a promising implementation of our 2020 plan.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
