EuroBusiness Media (EBM): BNP Paribas, one of Europe's largest banks reports 2016 second-quarter results. Jean-Laurent Bonnafé welcomou are the CEO of BNP Paribas. What are the highlights of the quarter?
Jean-Laurent Bonnafé: In the second quarter BNP Paribas delivered good results and confirmed its solid capital generation.
Revenues progressed by over 2% in Q2 with the operating divisions showing a positive evolution on a like-for-like basis. They were on one hand impacted by a negative foreign exchange evolution but on the other hand they benefitted from the capital gain on the sale of Visa Europe.
Costs were globally flat compared to last year.
Cost of risk at Group level was significantly down standing at 45 basis points with most businesses lower or at a low level.
The Group’s net result was stable at a high level which was almost 2.6 billion euros. Excluding the exceptional elements of the semester which were positive, the Group’s Return on Equity improved to 9.7% and the Return on Tangible Equity to 11.6%.
And, as I said, the Group’s solid and recurrent capital generation was confirmed in Q2 with a further improvement in the fully loaded Common Equity Tier 1 ratio which reached 11.1%.
EBM: How have your Domestic Markets performed in the second quarter? And how is Arval progressing with the integration of the fleet management business you bought last year from GE?
Jean-Laurent Bonnafé: Domestic Markets showed a good overall resistance in the second quarter. A gradual improvement in loan demand was observed while deposit growth continued in all businesses.
Domestic Markets have also continued to expand and enrich the digital offering.
Our fully digital bank, Hello bank!, continued to develop well as it acquired 210,000 new clients in the first semester of the year.
Alongside this, our digital offer is being enriched with the forthcoming launch of a new App called Wa! which is an innovative secure multi-service payment solution through mobile phone that combines payments, loyalty programmes and coupons.
In terms of P&L, revenues were only slightly lower at 4 billion euros. Low rates and weak financial fees continued to weigh but the specialised businesses and Belgian Retail all marked a good performance in the quarter.
Operating costs were moderately higher while cost of risk decreased especially in Italy. On the back of this, pre-tax income stood at 1.1 billion euros in Q2 confirming the good resistance of this division.
Regarding GE Fleet Services, the integration with Arval is proceeding swiftly. As you might know, thanks to this acquisition that was closed in November 2015, Arval has become the leader in Europe with a fleet of nearly 900,000 vehicles. The addition of GE has meant that Arval is now the market leader in France, Italy, Spain and Belgium while it nearly tripled its footprint in Germany.
Overall, the GE acquisition is expected to generate some 45 million euros of synergies over the next three years, essentially deriving from cost synergies.
To sum up, a resistant performance from our Domestic Markets while continuing to develop our digital offering and swiftly integrating GE Fleet Services in our Arval business.
EBM: What are the Q2 highlights of your International Retail Banking? In the light of recent events in Turkey, what can you tell us about TEB, your retail subsidiary in the country?
Jean-Laurent Bonnafé: Starting with BancWest in the US, a milestone of the quarter was the fact that we passed the CCAR test first time round, confirming the solidity of our US Retail banking.
Business activity continued its good evolution with deposits increasing by over 6% and loans by nearly 8%. Assets under management in our Private Banking were also up standing at 10.9 billion dollars.
At constant scope & exchange rates, revenues were about 1% higher net of some capital gains on loan sales booked last year. Globally, revenues were penalised by the lower yield curve compared to last year. Costs were higher on the back of investments to strengthen the commercial set-up while cost of risk remained low.
As a result, pre-tax income came in lower at 181 million euros in Q2.
Moving to Europe-Med, business activity progressed well both in terms of loans and deposits. Our digital banks in this zone continued to attract new clients: Cepteteb in Turkey has already reached 290,000 clients while BGZ Optima in Poland has close to 180,000.
At constant scope & exchange rates and excluding non-recurring items, revenues progressed while costs increased due to the combined impact of the new banking tax in Poland and the higher level of activity. Cost of risk was lower this quarter. On the whole, Europe-Med’s contribution to Group’s results was down at nearly 150 million euros.
You mentioned also recent events in Turkey. Our local subsidiary, TEB, is a very well managed bank. It is self-funded and its Capital Adequacy Ratio stood at 13.7% at year-end 2015. In terms of exposure TEB represents 1.3% of the Group’s total gross commitments.
TEB is a very solid local bank which is committed to serving its clients.
EBM: Your consumer finance arm, Personal Finance, is an increasingly important contributor to Group results. How has it performed in the second quarter?
Jean-Laurent Bonnafé: Personal Finance showed sustained business activity in Q2 with outstandings increasing by 9% on a comparable basis, driven by higher demand in the Eurozone.
Alongside this, the digitalisation of the business is progressing as shown, for example, by the increasing number of files that are digitally processed. In the first half of the year, the number of files with digital signature was up 15% on the same period last year.
Revenues were impacted by a negative foreign exchange effect this quarter. At constant scope & exchange rates, they were up 2.8% on the back of volume growth and a gradual shift towards products with a better risk profile.
Good cost control coupled with a significant reduction of the cost of risk resulted in a sizeable increase of pre-tax income which reached 364 million euros, up nearly 20% at constant scope & exchange rates.
In conclusion, Personal Finance performed strongly in Q2 confirming its significant contribution to the Group’s results.
EBM: Looking at your Savings and Insurance businesses, what were the highlights this quarter?
Jean-Laurent Bonnafé: Total assets under management increased by 13 billion in the first semester to 967 billion euros, essentially on the back of good net inflows in all our businesses.
The bulk of these inflows was actually in the second quarter.
If I take the Insurance business first, revenues were 9% higher on the back of a high level of capital gains realised.
Costs remained well under control leading to a pre-tax income of 387 million euros, up 13% on last year.
Looking at Wealth & Asset Management now, revenues showed good resistance in an unfavourable market context. Effective cost control meant that pre-tax income was only marginally lower at 181 million euros.
To sum up, our Insurance business marked higher results in the second quarter while our Wealth & Asset Management showed good resistance in a still unfavourable context.
EBM: To what extent did your Corporate & Institutional Banking recover after a difficult start of the year? What progress are you making on the transformation plan you recently announced?
Jean-Laurent Bonnafé: Our Corporate & Institutional Banking delivered high standing results in Q2. Revenues marked a good performance, standing at over 3 billion euros, higher than last year which was a high comparison base. Both Global Markets and Corporate Banking had a good performance while Securities Services was slightly lower.
Taking them one at the time, starting with Global Markets which showed a strong rebound compared to the previous quarter as client activity picked up.
Fixed Income’s revenues increased significantly topping 1 billion euros thanks to sustained activity on rates and forex as well as good performances on credit and bond issuance.
Equities were down but the comparison base of the prior year was particularly high.
Securities Services saw a moderate contraction of its revenues mostly due to the lower stock markets and the reduced level of funds’ subscriptions and redemptions.
In Corporate Banking, revenue growth was driven by higher volumes and good commission income this quarter. Transaction banking activities progressed well, especially cash management, as did cross-border financing and advisory.
Costs increased on the back of the increased level of activity. Besides, the higher regulatory costs were more than offset by cost savings.
In terms of the Transformation Plan, we’re proceeding with its implementation as planned.
By way of example, on the cost efficiency side we’ve launched 55 projects to align IT systems in Global Markets.
Regarding capital productivity, we’ve already disposed or securitized some 6 billion euros of risk-weighted assets out of the 20 billion we’re targeting in our plan.
To wrap up, a very good overall performance for our CIB in Q2.
EBM: Regarding the outcome of the recent referendum in the UK, what impact could Brexit have on BNP Paribas' business and earnings?
Jean-Laurent Bonnafé: As you know, BNP Paribas has a diversified business model in terms of countries and businesses.
We have no concentration by country, business or sector and none of our business represents more than 15% of the total allocated equity.
As far as Brexit is concerned, BNP Paribas’ market activities in the EMEA region are well-balanced between the UK and France.
And the Group generates roughly 2.5% of its Operating Income in the UK.
So, in a nutshell, given the Group’s diversified and integrated business model, we are very resilient in a changing environment.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
