Societe Generale SA
PAR:GLE
Societe Generale SA
PAR:GLE
Price:
70.99
EUR
-0.21%
Market Closed
Market Cap:
€53.4B
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Ladies and gentlemen, welcome to Société Générale conference call. Frédéric Oudéa, Chief Executive Officer; and William Kadouch-Chassaing, Chief Financial Officer will present the Group's first quarter 2019 results. Gentlemen, please go ahead.
Good morning to everybody. Thanks for attending this presentation of our first quarter result. As usual, I will just make a few introductory comments, give the floor to William to enter more in the detail, and after management team will be available to answer your questions.So let's start immediately by the first slide on the key highlights of the quarter. Let me first highlight, obviously, the strong increase of our capital ratio of our core Tier 1, up 55 basis points with a core Tier 1 ratio, which stands at 11.7% factoring discrete option dividend with a 50% assumption.We will enter more in the detail. But it's reflect clearly after [ CETI ] to meet our trajectory as soon as possible of this 12% ratio target. Beyond this, I would say -- I would like to highlight the good and resilient performance of our businesses. The overall net income, underlying net income stands at EUR 1 billion, our return on tangible equity at 8.4%. We will enter into the detail, but you will see overall good commercial activities and interesting trends in our different activities.The risk profiles of Group remain very sound. We have a cost of risk at 21 basis points, the NPL ratio further decreases at 3.5%. And as you will see, we have started to implement the strategic -- adaptation of our business model in the wholesale activities. We are definitely on track to execute this spend, and we are giving more information regarding this plan today, as well as what we do, of course, on the 7th of May.I will turn the floor immediately to William, to enter into the detail.
Good morning, everyone. So turning to Page 6 with the key highlights on the performance of the Group fair division in [indiscernible] Corporate Centre.Let me start with the red line at the bottom of the page. Group net income, as Frédéric said, is above EUR 1 billion underlying, as adjusted for the well-known IFRIC provision, reported at EUR 631 million. The ROTE is 8.4% for the quarter.It is very important, overall, to keep in mind that this is -- the business performance is quite stable. Business revenues are up this quarter plus the 0.3%, and the net income for the businesses is very slightly down flat year-on-year. The big difference that you can see in the underlying net income for the quarter stands [indiscernible] from the Corporate Centre.Corporate Centre has a normal negative, minus EUR 113 million gross operating income for the quarter, very much in line with the guidance. But if you remember, in the Q1 2018, the Corporate Centre had an exceptional performance with some one-offs.Starting with French Retail. French Retail is -- has, again, this quarter resilient profitability at 10.4% return on normative equity, good commercial performance, I will come back to it in a minute. The net interest margin is down again, which does explain the fact that the revenue around 3.2%, principally. The quarter issued a net interest margin, yet, let us stress the fact that net interest margin increases in Q1 relative to Q4, which makes us confident that we shall be in the territory. We had indicated in Q4, for the revenues for the whole year 2019, i.e., will be 0% and minus 1%, over the new development, again, for the whole year.International Retail Banking is -- for another quarter in a row, showing strong performance, revenues are up 8.3%. Solid commercial momentum across all geographies, positive jaws. The return on normative equity stands at 15.7%, which is up 20 basis points relative to the same period of last year.Insurance and Financial Services began very strong, revenues up close to 4%, broad-based across insurance and fleet management, and the leasing and the profitability improved further by 110 basis points, relative to the same quarter of last year at 20.5%, having great satisfactory performance.Global banking and Investor Solutions, obviously, have a more mixed picture. Revenues are up 1.1%, in constant minus 1.8%, when adjusted for any change as of August, by the turnaround this quarter.Very strong performance on Financing & Advisory. Revenues up 19%, 1-9, current in constant term, plus 16%. The group will not get down but resilient, especially the equity is only down minus 5%, which fairs well relative to competitor.Let me finally highlight on the Corporate Centre. We'll come back on it, but we a little IFRS 5 impact of minus EUR 53 million, standing on impairment of goodwill, especially of our Slovenia subsidiary, whose -- sale of which we've announced this morning. This is a noncash impact, and let me stress that we sold this entity for a good price. Just it's normal that according to IFRS rules, we impair the goodwill, if appropriate.Also on risk profile, Frédéric said, the most important things, 21 basis point is low, is down from the previous quarter. It is in line with the whole year of 2018, and it's at the -- it's down, relative to our guidance for the year of 20 to 30 basis points. Very importantly, we continue to increase the asset quality, nonperforming loans are down further at 3.5% this quarter. This is, again, a quarter where we managed to decrease it proactively.Lease coverage ratio is up at 55%, which is one of the best coverage ratio in The Street. Obviously, we saw normalization in the market, stressed VaR and VaR are down this quarter. I will come back to it.I'll spend a little more time on Page 8. I know this is a key focus area for you guys at [ M&A ] for The Street, as a whole, which is our management of capital ratio.As Frédéric said, core Tier 1 is up 55 basis points this quarter. On the pro forma basis stand at 11.7% in Q1, relative to 11.2% in Q4. Let me stress the key elements of this improvement. Number 1, organic RWAs, you see on the page, at plus 23 basis point. What you have behind it is a portion that is linked to a normalized market risk RWA [ reduction ]. They are down minus EUR 5.5 billion, which is approximately 16 basis point equivalent. On top of it, you have a very strict definitive -- a very strict management and allocation of our credit RWAs across businesses. As we said in Q4, some businesses are allowed to grow RWAs, especially those for the most profitable businesses. And those have to, obviously, be down or flat. On top of it, we have announced some optimization of RWA measures, especially more distribution for -- of loans and derisking measures of RWA [indiscernible]. It's very positive impact. We'll continue that [ pace ].Number second element is a deleveraging of Group whole market RWAs. As Frédéric said, we are on track to execute our plan. We started the plan as early as Q1. We decreased market RWA, so strategic decisions for about EUR 2.3 billion in the first quarter, the equivalent profit being 7 basis points.We must think to mention the [indiscernible], we are on track to serve key elements on the performance is, obviously, M&A. We had said that we were posting close to 20 basis point impact in first quarter, stemming from closed transactions. And we have 20 basis point this quarter. On top of it, we have announced a number of transaction, which should translate into 25 basis points capital creation. In the next quarters, obviously, not in the 11.7%, that will come through in the next quarters. And we expect that the EMC acquisition will cost us, in total, 10 basis points in -- spanning from '19 and '20. So as you see, we are very well on track from the execution.TLAC is up 25 -- to 25.2%, which is to be compared with regulatory requirements for this year of 19.5%. Let me stress at [ a year ] ago, but year ago the ratio only with senior debt, which is very satisfactory. We are already meeting our [ mere ] requirement. As we know, leverage ratio is stable and liquidity ratios are strong, the liquidity buffer is up EUR 5 billion. And as you can see, we achieved 60% of our spending program at just 80% of the senior nonpreferred program already. So nothing to worry about [indiscernible] this concern.Then I will turn to, if you allow me, straight to the businesses. Starting with French Retail, as we do traditionally, the commercial dynamics. As you see, they continue to be positive.Starting with the loan projection. Individual client loan outstanding, across all categories, are up 3% year-on-year. Medium-term corporate loan outstandings are up 6.3%. So it's, again, another quarter of growth in our loan outstanding in French retail.The client base in French retail is also improving this quarter, again. If you look at individual clients, we are plus 3% wealthy and mass affluent clients, these are core client base that we target. And Boursorama had another very good quarter, plus 30% number of clients year-on-year, i.e., 123,000 new clients on Boursorama, which is equivalent for -- to an inventory of EUR 1.8 million at the end of the quarter.We develop -- with Yahoo track, we develop our new set up for professional and corporate coverage. And we give you some indication on the right-hand side of the Page, which I will not comment on further progress in insurance, private banking and corporates, as you can see. The commercial dynamics overall remains favorable. The results, I already commented on the revenue, minus 3.2%. Again, mostly focused around the net interest income margin being down year-on-year. Fees is down this quarter. We have to differentiate the story here. After many quarters of increasing fees, we had, obviously, missed the resist impact from the market positions in Q4. In Q1, these decreasing financing fees, services fees, which account for about 80% of the fees are stable despite the euro [ check-it ] measures.The cost are very well controlled at plus 0.4%. And cost of risk is low, even down year-on-year for resilient profitability at 10.4%.Turning to International Retail Banking. As I said, this is another quarter of a very strong performance on all accounts. Performance on the commercial side is strong, as I said, across the board, across geographies, you see we have the data, high single digit or even double digit for Russia asfar as loan production of deposit outstanding, our concern. Revenues are up 8% in Europe, 12% in the half in Russia, 7% Group's -- 7% in Africa. And you can see that the Group net income for international retail is up 10% year-on-year, with a return on normative equity up 20 basis points, as I said, to 15.7%. Having said that, and I'm sure you have question that Philippe Heim and myself will be happy to answer. We want to make further progress in international retail. And we are convinced that we can further strengthen the commercial platforms, as well as the operational efficiency.We've been hitting the area in all the regions, from very strong market dynamic. We have GDP growing in Central and Eastern Europe, in between 2% and 3% per annum with very low unemployment and satisfactory public finance.In Russia, this is a little lower. It was [ 1.5 ], but still the market -- the banking market is very underpenetrated, and the central bank sees loan projection growing double digit in the next years. In Africa, we are -- each and every country where we operate, the gross outlook is in between 3.5% and 7%, so very strong, positive demographic. What we're doing here is, number one, invest in the commercial platform, be it retail banking in -- through digital investments. You have here an example of what we do in Russia. You can now have an approval for mortgage online in Russia in 10 minutes with Rosbank. Komercní Banka was the first bank -- or is still the only bank having introduced Apple Pay in the Czech Republic. In consumer lending, you know we have done a deep dive. We have very nice, very focused, very specialized consumer finance operation, profitable across all geographies, and working on the B2B2C model. What we're doing increasingly is provide digital tools to our partners. Car dealers can leverage upon our central e-commerce platform to manage their inventories, or our partner, Otto Versand in Germany through Hanseatic Bank, has been provided by us instant payment tools. And last, if I just focus on international retail. Let me focus on the fact that being a CIB house, we are trying to do the same with partners across geographies as we did internally with our own retail brand -- franchise in the emerging market, i.e., develop our CIB capabilities, leveraging and increasing trend of corporate growth across the board, especially in Africa with agreement we spoke with Absa. Operational efficiencies is another area where we invest. You have seen that -- to be as announced, the refocused central organization of the Pillar. We expect a downsizing of 40% of central function through 2020. And we obviously have set up hubs in Africa that will help us on the back offices. We also are implementing the merger between Rosbank and DeltaCredit in Russia. All that will help secure the profitability outlook. When you look at financing services and insurance, again, this is a picture of strength. We are providing you again this quarter on the left-hand side of the page some data not only relating to the accounting data of our insurance business but giving you the size of the insurance business for the whole group, including what is booked in insurance business unit and what is booked in the retail networks. We do roughly 8% of the group revenues in insurance, which is a very profitable business across the board, as you know. We have EUR 2.3 billion revenues in 2018. They have grown 13% per annum from 16%, and they continue to grow. You can see the protection premiums were up 10% in the first quarter, continue to have strong growth in life insurance outstanding, 4%. We also invest in digital. We have created quite a unique startup which offers digital contextual insurance, and we will roll it up through an Indian partner with whom we have spoken agreement for the whole of Europe in the next quarter. You see that ALD on the financial services has a fleet, up 9%. Revenues for ALD and leasing, up 5%. We have particularly strong quarter in leasing in Q1. Group net income, 9%, and the return, as I said, up 110 business points to 20.5%. And so in the end, the number I think you should focusing -- focus on is the 17.6%. Remember, we have said in Q4, we aim to deliver 17% to 18% Return on Normative Equity for the division by 2020, meaning we are already on track through strong revenues and positive jaws. You see that the operating expenses are very well contained. As I said, in CIB, the picture is more mixed with a very strong and probably the strongest in The Street, at least for those who are established so far, performance in financing and advisory. Revenues, up plus 19%, 16% in constant terms. Global markets are resilient but in a unfavorable environment for market activities overall. So it's minus 7%, including investor services revenues for market sales -- market activities in services about minus 10%. We have minus 16% FICC, minus 5% in equity, which again, I think is a good performance, relatively speaking. You can see on securities revenues -- securities services as well as private banking that we had the benefit, according to our IFRS 9 rules, to offer revaluation of our stake in the Swiss Stock Exchange, SIX, for about EUR 66 million in total this quarter. Although, as you can see for global banking and investor solutions, revenues are up in current term, plus 1.1%, minus 1.8% in constant term. Operating expenses are very controlled, flat in current term, down in constant terms. Of all the Return On Normative Equity is 8% to be compared with our ambition to raise it to 11.5% to 12.5%. And this is why we're presenting and we will present in the next days through the deep dive that we are targeting on the 7th of May on GBIS activities more details on our plan to restore growth and profitability in the business. Starting with the global market activities. As you can see from the right of the page, we will focus on reducing by EUR 8 billion the RWA allocated to market activities. EUR 2.3 billion have been already achieved. 80% revolves through our flow product. The strategy in a nutshell, as you see from the left-hand side of the page, we will come back to meet on the 7th of May, revolves about focusing where we think we have fundamental competitive advantage, leadership and above-average profitability, which is investment solutions, which will provide for distributors across the board, asset managers, private bank insurers as well as retail banks through simple products such as the ones we're buying from Commerzbank, with these products; or more structured products such as Autocall, as a gating point. We'll provide services on the cross-asset business, and we will continue to grow there these businesses in the growth path, profitability. Second, we want to continue operating as a leader in financing based on assets, which is something where we have a competitive edge. And finally, as you have seen, we will restructure strongly the flow activities, especially on the FICC side, to focus on where we are strong and where we have cross-selling abilities, i.e., the core corporate franchise. We have already announced the closure of the OTC principal commodities, the closure of the Descartes proprietary trading activities. We have already said that we will be much more selective in prime services and clearing and that we downsized fixed income. I've already mentioned, we will detail that more on the 7th of May with all the business managers of the CIB division. On cost, and I won't go there in the details. Just to give you further information, we confirm the ambition to decrease the cost in absolute term by 2020, being positive jaws again for CIB as for the all the other divisions. So the savings plan for EUR 500 million, in addition to the existing savings plan has been launched. Will be executed as early as the second half of the year when we are finished with especially the social dialogue. What you have here, the new information is a split between the various divisions. As you can see, 76% of the cost plan revolves around market activities. Another information we're providing you with, that's Page 21, is a sequencing of events. You had many questions in Q4, so we are more precise as you can see. As far as deleveraging is concerned, we confirm that we want to execute the bulk of it in 2019. And as you have seen, we have started strongly to execute that promise. On the cost savings, we will execute part of it as early as 2019, meaning we will be done with the execution of the plan, but the savings will fall through partly in 2019 and fall 70% to 80% in '20. So we basically confirm that we expect the full impact of recurring savings by 2020 onwards. We confirm that the restructuring cost should be between EUR 250 million and EUR 300 million. Which we have said in Q4, 100% should be incurred as early as 2019. Let me stress here that I mentioned the cost to achieve, that is the total restructuring cost, which is slightly different from the accounting -- on accounting provision. We will be coming back to you in Q2 with the possible accounting provision related to this cost to achieve. And finally, you had questions on the impact on revenue spending from our deleveraging. We are being more specific. We had said between EUR 200 million and EUR 300 million, so we give you a EUR 300 million number for the revenue impact. Let me remind you that the whole division of GBIS accounts for about EUR 9 billion revenues. Corporate Centre. I've already mentioned the minus EUR 113 million gross operating income, which is consistent with the guidance of minus EUR 500 million for the year. I also mentioned the minus EUR 53 million IFRS 5 accounting impact. Let me stress again that you can see the difference between Q1 '19 versus Q1 '18, we had a very positive impact in Q1 '18. We are back to normal. And that explains some of the gap between the 2 years.
Thank you very much, William. As you know, we will meet on the 7th of May with much more detail on the content of the businesses and their perspectives, both for the French retail and the global banking and investor solutions. But we are done for the presentation of the first quarter, so now, we can enter into the Q&A. [Operator Instructions] And the floor is yours.
[Operator Instructions] We have our first question from Tarik EI Mejjad from Bank of America.
This is Tarik EI Mejjad from BAML. Just a couple of questions, please. First of all, on the RWA deleveraging and the impacts to revenues, clearly, in Q1, you had a good or strong start to the program. But I mean, Q1 was a bit weaker revenues, but still we're expecting more pressured revenues from the deleveraging. So what I want to understand here is that still to come in next quarters? Or -- and how this RWA deleveraging work is over the quarter? Is it happening like in the last few days then, hence, the revenues are not impacted? Or is it through the quarter? And second question, still on RWAs and market risk. You reversed all the higher market risk that you have had in Q4, around EUR 7 billion in Q1. Is that EUR 15 billion of risk -- of market risk, as it is, the new number to have? Or should we expect some re-reversal around EUR 2 billion or EUR 3 billion in the next quarter from market risk?
Hello, Tarik. I think I will leave the floor to Séverin, these 2 questions. Séverin?
Yes. Regarding risk-weighted asset deleveraging we have experienced in the first quarter, we have started early -- in February, in fact, to start that [indiscernible] we might figure out the first quarter results. So you can consider that in Jan, we didn't do anything, but we started over the last few months. And you had necessarily also a small impact on NBI due to this, Feb and March, specifically on fixed income. But it's not much at that time.
But what we can say, it will be more probably spread throughout the year rather than a one-off on the revenues. I mean, so...
Absolutely. [indiscernible]. Yes, you're right. And we will deliver 75%, as mentioned by William, in terms of deleveraging this year. So we will have also one slightly by next year.
And regarding the second aspect of your question, it's William, yes, Tarik, you're perfectly right, we had, as I said, the increase in the market RWA in Q4. Lastly, it reversed this quarter. This fundamentally reflects normalization of market conditions. As we had said before in our capital walk that we provided you for [indiscernible] in Q4, we have a rather conservative approach of market risk RWAs, which means that our plan that factors some -- the fact that the normalization is not as big as the increase in 2018.
Yes. But just to follow up on that. I mean, now you're run -- can you run the global market division at 15% RWA market risk? That's like a low end of what you've done in the last 3 years. Or is it more EUR 16 billion, EUR 17 billion than the level of RWAs that you need to have for that business?
Listen, I think that it tends to vary, let's face it, as we have seen. But again, there was an extreme scenario in Q4, a much more normal one, I would say, this quarter. You can have some fluctuation. What is important, I think, is to consider what we are doing also structurally, and that again the fourth quarter situation was abnormal. So I think that again you can have a small fluctuation, but if you have normal conditions, not the one we had in the fourth quarter. Difficult to tell you more than that, Tarik, yes.
Next question comes from Lorraine Quoirez from IBS (sic) [ UBS ].
I have 2 question. Perhaps one, a bit generic. So your restructuring mode now, basically you're shrinking a bit to generate some capital. But I was just wondering longer term what's your vision for the bank? And how does that restructuring you're doing now change the division that you laid out during the last investor day? My second question will be on the margin improvement in France. I would like to understand better the dynamics on how this margin is actually improved given the current context.
Lorraine, I will leave the floor in a minute to Philippe Aymerich to answer your question on the French retail. I think that on the 7th of May we'll highlight that actually we have a selective approach in terms of capital allocation. And I would not say that we are in a restructuring mood across all the businesses. There are businesses which are growing very well, and we are very positive on that. In the international retail and financial services, as we've said, across the board, we expect further development, further improvement of the profitability and operating efficiency. Then you have the French retail, and again, Philippe will comment, it's a more mature market, these retail activities. And we've seen, generally speaking, and across the Eurozone that retail activity is sometimes positions are good like in France. So first, you suffer from low rates, but we are here transforming effectively the business model step-by-step. But I seek efficiency. And then, as I said and William, I think the CIB, we have very strong dynamic in the financing activities, and that will stay. But we have effectively a reallocation of our capital. Regarding the market risk -- look at the market activities, sorry, to improve the profitabilities, factoring all elements, environment, regulatory headwinds, et cetera. So I think, if I may, it's a strategy, which is adapted for the different businesses. All in all, we are confident to see further progress of the growth in terms of profitability, cost efficiency and cost -- operational efficiency step-by-step. Today, yes, it's hard to say on the CIB we announced. And we are really focusing on the execution and we're confident on the execution in CIB, in particular in capital markets. As we've seen, we have 3 quarters of the savings in that division. Perhaps, Philippe, can you answer the question on the French retail?
So the 2 components, of course, in the interest margin, the first one is on the loans. And definitely, it's stabilized for I mean 2 main reasons. The first one is that we have a good momentum regarding the origination, notably on corporate in the last quarter. And this quarter has been very good on the corporate side. And also because we are very selective, and we are also quite cautious of the origination with our prices. So that's the first statement. And that's why on the credit side, the net interest margin basically it's stabilized. It's -- actually, it's minus 1% compared to first quarter of last year, and it's plus 5% compared to the fourth quarter of last year. Regarding the deposit, there is also favorable trend. I can share with you some numbers. Compared to first quarter of 2018, there's a decrease of minus 5%. Compared to fourth quarter of last year, it's only minus 3%. So again, on this one, the stabilization. I can remind you that when we compare the first quarter of 2018 versus first quarter of 2017, and we are in sharp decrease of risk -- of rates. The decrease of margin was minus 9%. So we are definitely now in the stabilization. Down, I would say, for net interest margin for credit, and good progress with deposits.
Next question comes from Jacques-Henri Gaulard from Kepler Cheuvreux.
I just have one, really. When I looked at your results this morning, it's roughly EUR 630 million net income. BNP was EUR 1.9 billion. Consensus expects Credit Agricole at EUR 850 million. That takes us to that EUR 600 million. And it's true you've been in attrition for a while. And can you say now that at the end of all this in Q1 '19, we're really at the end of the that attrition process? And can you really start from that base now to grow again?
Jacques-Henri, there's no attrition. I do not buy this concept of attrition. As I've said, we are in a process of completing or refocusing of the group, which is, at the end of the day relatively limited. We have completed the refocusing on the Balkans, and we're done regarding the international retail banking. And as I said, it's interesting to see that this division, despite actually the fact that, for example, Bulgaria is not any longer in the accounts in the first quarter grow its net profit, any profitability. As we've said on the French retail, we are probably at the inflection point. And we will further give you explanation on retail on the 7th of May. But as we said, we have in mind to have a progressive improvement of the revenues. This minus 0 -- 0% to minus 1% this year and back to growth, with effectively also on the cost -- the benefit of the beginning of the decrease in 2020 effectively. And GBIS, the whole process, which is to fundamentally improve the profitability and go back to positive jaws. But I think that what we've always done is try to work on building a robust business model via this formidable transformation. Here, we're not talking about just 1 quarter. The whole banking sector is changing. We are adapting. We are, I think, adapting in the right direction in terms of the balance of capital allocation. We will again also comment more on this. And we are very positive on what we can achieve in the coming quarters, of course, through the P&L and the capital, and be in a good position to further grow also beyond 2020, obviously.
If I may add just one point. I think one should not confuse attrition with better management of capital and resources which is basically what we're doing now.
Next question comes from Jean-Francois Neuez from Goldman Sachs.
The first question, I wanted to ask was, I know it's only still the first quarter, but I was looking in terms of the full year outlook with the possibility of keeping the floor that you have had in the past for the dividends, also taking into account the announcement of the restructuring charge? I know it's a board decision and ultimately your shareholder approval decision, but is this your plan to continue to offer the floor this year, even if the net income was not to be enough to -- in particular, with the one-off to cover with the 50% payout? And is this your plan to propose cash or see a scrip option. And my second question was on the business side, in the CIB business, in the financing part, there is a very strong growth of risk-weighted asset that has resumed for the past 4 or 5 quarters after a period like 14%, I think, it was year-over-year this quarter after the year that was before that decline of 8%, 9% measured. So the return on equity is still not necessarily all that high and I just wanted to understand from here, in order to push the return on equity clearly above cost of capital here, in particular, with super-low loan losses. Are you planning continued really high risk-weighted asset growth? Or does it also to come through the cost here in any of the cost program for CIB also relating to the financing business? Just wanted to understand what's your budget for growth in that business?
Jean-Francois, we'll let Jean answer your -- the second part of your question. The first part is the dividend. There is no change of policy. We have, as you know, a capital trajectory, and I must say again, this quarter, is an important milestone to show our capacity to meet this capital trajectory, which is planning effectively 50% payout ratio. And we will apply the draw anything in cash. As we have said, this year, we decided, based on the decrease of the fourth quarter and the headwind on the regulatory side that we have caliber -- calibrated at between 30% and 50%, probably, I'm pretty sure that it might be postponed actually, not to the second quarter, but probably more the first quarter. But again, that was making sense. In order to meet also as quick as possible the 12% and if I'm going too low to make this decision. But for 2019, 2020, we are doing everything too precisely, absolutely, the -- compatible with this policy of the dividend and the capital trajectory is based on that. Now back to Jean on the financing.
Yes. We know we managed this activity as old GBIS securities with our risk-weighted asset limits. And it's fair to say that last year, we had an increase compared to end of 2017 and 2018. And now we have a new target in term of capital allocation of old businesses like in GBIS. What we will do is we will progressively reallocate more capital on more profitable businesses, and it is one of the businesses, which is more profitable and the total limit we have to deliver the target in term of return on equity. So we cannot say that the growth was that as you expect during the last year was, you -- we will not forecast that for, like, a period of time. So second point we make as, we in the train and we comment on that on next Tuesday, where we are [indiscernible] and increasing the ratio and we are in risk-weighted assets through the development of businesses, which is more fee-driven. And it is one of the key target we have to deliver more revenue and more growth return with a lower risk-weighted asset consumption also in financing and advisory.
Thank you for clarifying so clearly with the dividend.
Next question comes from Pierre Chedeville from CM-CIC.
2 quick questions. First question, I was surprised when I learned that you were closing your commodities business -- OTC commodities business. Because in my view, you are the boat of the activity of commodity business of Commerzbank. So maybe, I am wrong, but what is exactly what are you going to keep or not to keep the acquisition of commodities business? And is -- this could have an impact regarding the cultural impact of the acquisition of CBK activities? My second question is about the impact on your gross income in GBs, regarding the loss of revenues of EUR 300 million and the economies of EUR 500 million. So it will be a net of EUR 200 million. And with gross calculation, it means for me, roughly 1 point of improvement in your profitability. And when we look at the current profitability, which is around 8% -- 8% last year and your target in 2020, this mean it attracts more or less 2 or 3 points of profitability, which will not come for your plan of adaptation. From where these improvement -- this improvement will come from improvement in market conditions according to you that are close to 2017 for instance or to capital allocation and reduction of risk-weighted assets?
Ched, I will leave Jean-François Grégoire, Head of Capital Markets to answer your first question and then Didier will answer the second part of your questions. Jean-François?
So I did a deep review to exit the OTC commodity business and by doing so, by exiting as well as the operational chain that makes, the costs are decreasing at the same time. But there are some products and namely, the listed products, the broad products that we'll keep and that we'll be able to manage in another chain. So the -- these products that were in the Commerzbank deal, will be still on our offer.
Didier?
Yes, and -- yes, as you said, target is to deliver a return on equity of the Global Banking and Investor Solutions next year [indiscernible] on the development side. And the plan, we are presenting to you, is really to deliver that with all the levers you mentioned. We have still some growth opportunity, as I mentioned, even if it's -- you know that it's a financial advisory, financial banking and private banking in France and so on. We have also our cost reduction plan and a reduction in terms of capital allocation. So these are 3 main drivers where we will work and we are working at and the first quarter is just into the first state, and -- but the EUR 300 million loss in term of revenue is under EUR 9 billion global revenue entity we are managing today. So it's -- where you have -- there is a slight improvement also in the market condition essentially from the next year.
Next question comes from Omar Fall from Barclays.
2 questions for me. Firstly, last quarter, you told us you'd increase the benefit CET1 from disposals to 80 to 90 bps, which at that time, 37 bps have been closed. There's a lot of moving parts. So following the sale of Slovenia, how much of that 80 to 90 is left? And can you give us an update on the process of identifying these further assets? Secondly, just on French retail and apologies, if I'm getting ahead of myself, ahead of Tuesday, but you are now growing almost in line with the industry level in terms of loans, which is the first time in many years, which is very encouraging. But are you effectively dropping the selective loan origination policy that you told us in the past would protect you from the low rate environment, but if we're honest so far, it's hard to see the positive results of that? If so, why have you changed your mind on that front?
Omar, I will let Aymerich comment again on our credit origination policy. You will see that we are again selective, in particular, on the market. May I just clarify, we had not closed anything end of 2018 regarding our disposal. We had announced for the equivalent of 38 basis point, nothing was closed. We started to close those -- some of the disposal beginning of this year with Bulgaria actually. And we have effectively, in this first quarter, the benefit of disposal representing 20 basis points. We have announced today the sale of Slovenia, which means that the remaining 25 basis points, which has been announced, and which will be closed in the coming quarters and then it will, of course, choose the cost-income ratio. Based on this, as we're rightly pointed out, we have effectively a more global program of 80 to 90 basis point, and we are proceeding to the sale of the other assets. What I'd like you say is, I'm very happy in the way we have disposed the first part of this program with good prices. These are sound assets with strong interest of many players, and I think it will be same for the second part. So again, things are in progress on that front. Philippe Aymerich, on the French retail?
Yes. There is no change in origination policy and nor in the corporate market, nor in traditional sport individuals. I think that we are starting to receive the benefits of a transformation plan, and as I said especially here on the corporate market, this quarter has been very good. Yes, on origination, that we had a good level of margin and also on fees. So I guess you see the -- as you can see are more or less stable despite the yellow jacket cap on fees. And this is due to good momentum on the fees related to credit and related to the corporate market. So no change in origination policy.
Great. Just answer a very quick follow-up on that -- on the first question. Just to help us with the modeling of the Europe division, because consensus is all over the place. What geographies will still be there in Q2? And when does that line go to zero or close to zero based on the expected closing?
Listen, it's a little bit difficult to give you precise information. The closing will take place in 2019, normally we...
So basically, as Frédéric said, compared to your 80 to 90, you can see that we have an also as equivalent of more than 50% of the program in a year -- in the first quarter program that is supposed to be developed through 2020. What has been closed to be somewhat precise is Bulgaria, Albania, the sale of our profit bank in Belgium, the sale of the small online bank in Spain. This is what we have in Q1. I won't give you precisely what you should take in Q2 or Q3 because this is at the time of regulatory approvals -- and those approvals may depend on one market to another, but clearly what you have -- what we have announced further to what I've I just mentioned, which has been closed in Q1, is Poland, Serbia, Montenegro, Moldova, Macedonia and the recently announced Slovenia. We have already on top of it said that that for everything that has been announced in Q4, i.e. the 38 basis points that Frédéric was referring to, the total impact on net income would be going forward of about EUR 125 million. So you make an assumption on Slovenia and Brazil.
Next question comes from Flora Benhakoun from Deutsche Bank.
I have 2 questions on capital. The first one is regarding TRIM. Just wanted to know first of all if there was any impact from TRIM in the Q1 cost-to-income ratio. And then more broadly, if you could shed some more light on the portfolios that have been reviewed already and especially, whether your market risk portfolio has been reviewed? The second question is regarding operational risk, RWA. Because you must have seen that for other French banks, the regulator has asked them last year either to toughen up the assumptions on the internal models or to increase the use of the standardized model. So I just wanted to ask you whether you have had similar review from the supervisor or if it's yet to come? And if it's not happened yet, if it's incorporated in your guidance for the 30 bps to 50 bps on the regulatory headwinds?
Flora, I'll return the floor to Diony Lebot who is in charge of monitoring, in particular, the Risk Division and all these elements. Please, Diony.
Yes. So in regards to the impact of TRIM this quarter, it's quite small. It's 2 basis points. No further refinement of our guidance regarding TRIM, and we have said that we expect a further impact on TRIM and all model reviews of around 30 to 50 basis points. At this stage, based on the information we have and decisions we have received and as for the interest rate, we probably don't expect this impact before Q3. And to your more precise question on the market risk, we did have a review, but decision is still pending. And most of the decisions are already received and incorporated in our past -- quarter 1 is mostly on high-deferred portfolios on retail. On operational risk, yes, we did have a review of our AMA models. 3 years ago, we did receive a decision and it's already incorporated. And we don't plan to make any changes on our usage of advanced models.
And yes, if I'm not wrong, we are actually more capital than the FX model. And we have identity, which is higher. So I don't expect anything now on that front. No change on this.
Next question comes from Azzurra Guelfi from Citi.
Two questions from me. One is on the CIB. I would like to know if you could share with us what is the revenue growth assumption that you plan in the coming quarters. Because you indicated that you expect some kind of recovery and that would be essential for the organic generation of capital. Don't know if I have to wait for Tuesday, but in case I just ask. The second one is on Basel IV. I know the regulatory framework is not yet set in stone, but you have been one of the few banks that have actually been kind enough to share to the market an indication of what was your Basel IV expectation. That has been this quarter, the review exercise published, both by GBIS and DVA. And I just wanted to know if in light of that, you have any revised guidance to provide?
As you have said we will answer but understand it probably on the 7th of May we will have more information. On your second point, there's nothing -- I find nothing to change our assumption. I see nothing so no change. We will refine that in due course but there's no change on Basel IV. Séverin?
Yes. So we will provide you on the main [ guidance ] we're seeing [indiscernible] our businesses next Tuesday. And we don't guide on our revenue clearly for the next quarters on that businesses. But we will gain more insights on the dynamic where we are today.
Next question comes from Nick Davey from Redburn.
Two questions, please. The first one -- sorry, just a high-level question. But I suppose given this really fantastic capital generation in the quarter, I suppose I'm just scratching my head a little bit looking back now on the script dividends in a way. I just wondered if you could comment as to whether or not you sort of stand behind that decision or if you have any regrets on that decision. Because when I listen to you talk about the disposal still to come, the market risk, RWA, still to come. You were talking about originated distribute being a tailwind. Just come up with plenty of capital generation from here far more than the regulatory headwinds to come. So I suppose, I'm scratching my head a little bit about that scrip dividend. I wondered if you have any comments. The second one just on GBIS. I know, again, something we may come back to in the coming weeks. But just in advance, given what you've told us about the phasing of the restructuring charges and the savings, which -- a negative headwind for this year. Should we expect negative jaws from GBIS this year? Or specifically should we expect rising cost this year pretty much whatever the revenue environment?
Nick, I think on your second question, again, we will come back to you on the 7th of May with a lot of detail. We don't give a precise guidance. We have given lots of information for you to plug assumptions. Listen, I know [indiscernible] the decision I mean [indiscernible], we are asking for -- or we have decided the scrip to be ready as soon as possible on the trust side. But can I just say to give you with the level of core Tier 1 in the first quarter, if you just add this 23 basis points. And maybe more, if people think that it's effectively a good decision that the shareholders to go for the scrip, plus the additional disposal, et cetera. We can be on the [indiscernible] side as quickly as possible, which will give you also an [ activity ] to ask the questions [indiscernible] comfort on the rest of the trajectory for 2019, 2020 on the dividends. So I think it's a persistent decision. We are applying our capital trajectory, and we cannot change from one [indiscernible] to other. I means it's a 2-year trajectory, and we are very confident with that, very comfortable. And the sooner the better on the [ trust as such ].
Next question comes from Kiri Vijayarajah from HSBC.
It's Kiri Vijayarajah, HSBC. So first question. So given all the business disposals, the streamlining that you've done and reducing your geographic footprint and complexity. I just wondered are there any kind of fresh thoughts on taking a look at the drag from the corporate center and central functions as a consequence of all the kind of streamlining you've done. And secondly, just very quickly, is there any kind of update you can give us on the kind of sector-wide money laundering issues stemming from Russia. I think previously SocGen seemed to be pretty clean on that front. But of course the -- your kind of internal investigations and stuff was still ongoing. So any update would be useful.
Yes. I will again leave Diony Lebot, who's supervising all our compliance efforts. And I must say, beyond the specific issue, all the efforts we have made in the last few years, and we are building -- we've of course some [indiscernible] as part of the old remediation program. On the first part of your question. Of course, we are permanently trying to see how we can further adapt to Corporate Centre, the setup to the business model. You have 1 [ CU ] and we still 1 [ CU ] even if we said [ that again ] but of course there are also other parts where we will see whether we can adapt. And I think that best that we give the floor to Philippe Heim to explain what we are doing precisely on that. We talk a lot about GBIS but then also part of the restructuring was just announced which is also for the international retail. So first perhaps, Diony and then Philippe Heim.
Yes, hello? So indeed we have carried the reviews related to the activities which were recently reported and under petition. Our investigations had led to -- -- identified any issues related to these [indiscernible] activities. But more generally speaking, I think it is important issue to highlight all the efforts which are made and have been made over the recent years to enhance the framework and our capabilities in terms of compliance. First of all, increasing significantly resources dedicated to compliance. We have more than doubled our headcount dedicated to control the function of compliance. We have made significant investments in technology to enhance all transaction monitoring tools including incorporating machine learning and artificial intelligence. And we have strengthened our governance with the global standards applying everywhere where we operate with quite stringent rules and independent controls on a regular basis. So overall, it remains, of course, a high area of attention. We have done a lot and we continued to strengthen into investing our framework and capabilities.
Thank you. Philippe?
Yes. Okay, just to come back to your points regarding [ legislation ] as a drag coming from the Corporate Centre. How can improve in practice the scale of profitability? Just to shed some light on what we have done on IBFS. You see that we [indiscernible] on the -- some good momentum on commercial activity and there's indeed a good financial performance. But nevertheless, we have accelerated our efforts on [indiscernible] to improve our operational efficiency. And I would be here very specific. We are working in -- on [indiscernible] first. The kind of functions we need to get in Paris to supervise and to serve this past parameter. So we have decided to address the fact that we have reduced the parameter where we saw an increase [indiscernible] on maturity of our largest subsidiary, namely [indiscernible]. That's why we have launched last month's plan, submitted to the overall of our [indiscernible] leading to a downsizing of roughly 40% of FTE, supervising the parameter of international retail banking. At the same time, as we know, we have decided to adapt the system of supervision to put our IT functions serving a sector in [indiscernible] so to produce our new IT functions at [indiscernible] original cost. And then to accelerate the rationalization, so we have good rational investment [indiscernible] Also in Moscow, you know that in Moscow, we have decided to merge the Rosbank and DeltaCredit. And we have launched a process of deconsolidation of our FTEs with the [ effort ] of our 2 IT in Russia and [indiscernible] and [indiscernible] And we will continue and accelerate this moment. And also another element, what we are doing -- what we are experiencing in KB in [ check liquidity ] is very interesting. KB has embraced a natural scale movement, and currently 40% of our FTEs in this quarter of KB are working alongside the [indiscernible] of the [indiscernible]. Let's say, a pretty large movement to capture efficient scales and in the long haul, let's say to build this sustainable and possible growth in IBFS
Next question comes from Matthew Clark from Mediobanca.
A couple of questions please. First one is on the day 1 P&L reserve that you made against level 3 assets. Could you just confirm whether that reserve saw a buildup this quarter or a decrease this quarter. Just wondering whether it [ splatted ] or hindered the trading results compared to previous periods. And then second question is coming back to TRIM, you said that the market risk-weighted asset review has already taken place. Has any of the low default portfolio reviews taken place yet? I'm just trying to get a feel for where that 30 to 50 basis point guidance comes from? Is it more from reviews that have taken place so where you have an idea? Or is it more from reviews that are yet to take place? And so it's really just a stab in the dark what the impact will be.
Matthew, I will leave the floor again to Diony with monitoring all this. And then to Séverin on the day 1 reserve P&L [indiscernible], Diony?.
Yes. So we had some of the mission or some are ongoing on the low short portfolios. But these missions take quite a long time both in getting the report and then the final decision. So -- and -- [ market ] to come. So the [indiscernible] debate is going as we have indicated is a combination of missions already carried. But we don't have a decision yet. And missions which have not happened yet.
And let me just remind you in terms of process, we were able to provide guidance with some comfort from the supervisor. At the point in time, beginning of the year, again where no decision was made. But again, missions were -- had been launched from [indiscernible]. So I think it remains the reason if all assumption is still of course some [ consultancy ]. Séverin?
Yes. As you know, we published this day 1 reserve volition at the end of each semester. So you will have that [indiscernible] 3 is at the end of June. Just to give you a flavor, it's fair to say that with the market transition and the product volume we had, it's a slight decrease at the end of the first quarter.
Next question comes from Maxence Le Gouvello from Jefferies.
Two questions. The first one is on the VaR normalization in Q1. Did it benefit from the closure of the prop desk or is it more to come? And the second question would be for Séverin, the good performance of the SNA in Q1, can we get a little bit more color where is it coming from. Is it coming from financing? M&A? And which type of sector and which division?
Hello, Maxence. So first Jean-François on the VaR and then Séverin.
So very quickly on the prop desk. Overall, the RWA allocated the activity were small. And [indiscernible] very marginal -- has been changed in Q1 and the rest would begin in Q2. But basically, it's not a big amount.
Séverin?
So regarding our financing advisory, it's mainly coming from our restricted finance and asset finance activity. We had a good performance specifically on [indiscernible] financing and shipping financing this quarter. This is also -- we have also a good plan in our payment division and [indiscernible] transaction banking [indiscernible] as you know by 10%. So all in, I think that the demand today -- I should add also that we had a good performance in [indiscernible] finance this quarter.
Okay. Do you believe that this is -- usually stricter finance were known to perform better in Q2, so can we expect better outcome in the coming months? Or for you, Q1 was normal -- the good run-rate that you were expecting for?
No. We have 19% Q1 growth. It's a very strong growth. So we cannot say that it's a normalized what we have to expect for this quarter.
But [indiscernible] again on the 7th of May, we'll have a specific presentation by Pierre Palmieri will enter -- and you will the robustness of the franchise. Now we are one of the world leaders in infrastructure finance, asset finance, renewable, et cetera. And there are some structural trends, which are very positive. On cash management, we are also developing very well. So as you can see, it could be a -- going forward, a clear support for the P&L generation of the group.
Next question comes from Stefan Stalmann, Autonomous Research.
My 2 questions are as follows. The first one regarding your contribution to the Single Resolution Fund, which actually dropped by, I think, 14% year-on-year which is quite different from the increase that we have seen at BNP. Could you explain why it has actually come down? And is there maybe a the shift change here between what you expense and what may go into a revocable payment commitment? And a second question goes back to global markets. And I noticed that your allocated capital in that unit has actually gone up quite a bit, 5% quarter-on-quarter, 10% year-on-year despite the fact that risk-weighted assets have been flat or coming down lately. Could you explain why there is this divergence between the average allocated capital and what the risk-weighted assets are doing, please, in this business.
Yes. William will answer both questions and will also the question on the average but I will... So first of all, the decrease of the [indiscernible] Single Resolution Fund.
Hello, Stefan. The thing we do with every year, together with our statutory accountant, is basically look at the basis upon which we apply the rate for the Single Resolution Fund charge. We did it according to the IFRS accounting rules, and this year, it translated into a decrease
It's sort of [indiscernible]
[indiscernible] yes, depending upon the amounts you have for the asset calculation, you may have a different amount.
And on the capital -- or rather, your question on the overall risk-weighted asset or market rate for capital market activities?
No. I mean the overall risk-weighted assets in global markets and investment services, not just market risk-weighted assets.
GBA, oh the GBA. Yes because we had also the financing, I guess. Séverin?
Yes. Not the financing, just the market start where your average allocated capital has actually gone up while your risk-weighted assets have come down.
Yes. You ask the disclosure at the end of the quarter, which is the explanation of the core Tier 1. But the average capital allocated is the average of the total quarter with some technical delays. So it's a technical impact.
So are your risk-weighted assets during the period a lot higher than at the end of the period?
The average isn't higher.
The thing is the other value decreased but the way you calculate, you take the 2 -- the starting point is the end of Q4, the starting -- the ending point is the end of Q1. So the average mechanically is different from the endpoint. What you have to take into account for the capital ratio is you -- the end point, which we have shown, the RWA number we ended up between.
With the benefit of, again the decrease that we have just commented now on the capital trajectory.
Next question comes from -- -- from Bank of [ Canada ].
Firstly is on the cost trends in the first quarter. I was just wondering about the mismatch in terms of investments and cost savings you previously guided for the full year. Is there a big mismatch? Do we have more of the investments coming in, in Q1 relative to the cost savings. And then I wanted to confirm about the restructuring cost in the CIB. Is that -- would that be booked as restructuring charge? Or will it go through the cost line? And sorry, just one question on -- I was still thinking about what with your answer to Stefan. So just to not get the impression that you crushed the RWAs at the end of the quarter, the allocation is a better reflection of the risk you're taking in the division, would you say that's a wrong conclusion or...
No, no, no. On the [indiscernible] business in terms of people, I mean for everyone, the RWA computation that goes into the ratio is the RWA at the end of the quarter. In order to achieve a certain [indiscernible] of RWA [indiscernible] you have to work [ right ] ahead. You can't manage production in retail or financing or you can't manage your market RWA in a matter of weeks. I mean these are things you have to implement quite well ahead. It's just that the way as it is standard net profitability is to account the RWA at the end of the quarter. You see the picture of the balance sheet. I think don't get carried away with the way we then account for the average rate when it comes to computing things such as ROE, RONE, which -- where basically we take average through a period. So just from be extremely clear, there is no window pressing or management of RWA at the end of the quarter whatsoever. This would be very impossible by the way in the way it works is very different. You can't stop a production in a week. And I guess, that was the question.
And on the cost -- I mean, again the provisioning, as we've said, the bulk of the EUR 250 million and EUR 300 million will be probably provisioned as restructuring cost. But then we might not be able to do all in provisioning and you will have more clarity in the second quarter. And do you have the -- I'm not sure if I understood your -- the first part of your question. I mean [indiscernible]
So In the full year results presentation, you gave us the -- you talked about your investments in 2019 at EUR 400 million and your cost savings being EUR 300 million. But is it like in Q1, would you say you've probably front-loaded some of the investments, while the cost saving takes longer to come through? Just in terms of understanding your cost trends with underlying up 3%. So is there some of this mismatch that has impacted the cost trend as well yearly?
But could you elaborate a little bit? These figures you're referring is it on the French retail level or the group level?
No. It's at the group level. Slide 14 [indiscernible]
At the group level. Okay. It's a global cost saving plan, and then investments that we make, in particular in the French retail [ consumation ] And so your question, is there any particular stating of that in the first quarter. I don't think so. To be frank, it's something, which is more or something linear from one quarter to the other. There is nothing I would say significant and specific. You can add some seasonality in the cost dynamic in certain businesses, but I would say it's not massive.
We have no more questions. [Operator Instructions] We have 2 more questions. One from Omar Fall from Barclays.
Apologies for the follow-up, but could you just update us on the EMC integration, please. It was a long time ago that we had the EUR 150 million target for operating profit. And obviously a lot has gone on in that market. So that does that still stand? And then when will we start to see the integration cost actually come through the P&L.. And that would be very helpful.
Yes, Omar. Who can take that? Jean-Francois, you can take it?
So regarding this integration, we don't change anything to -- compared to what we said in our guidance. So the -- we follow the plan as it has operated, so we have started to integrate the first business, the structure product by different batches that we onboarded on our books, and we've associated the stats. And started to work with the [indiscernible] with the integration of the listed products that will happen one shot at the end of the year. So no change compared to our guidance and plans.
And if I remember, -- we get the full benefit in 2021, if I'm not wrong when everything will be completed.
Yes. Because we'll have [ 20 some transfer ] during this year. Yes, so the full impact will be on '21.
Yes, yes.
We have no more questions.
Okay. Well, thank you very much for taking the time to attend the call. And see you on Tuesday. Thank you very much. Bye-bye.
Ladies and gentlemen, this concludes the conference. Thank you all for your participation. You may now disconnect.