Societe Generale SA
PAR:GLE
Societe Generale SA
PAR:GLE
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer; and William Kadouch-Chassaing, Chief Financial Officer, will present the group's second quarter and first half 2018 results. Gentlemen, please go ahead.
Thank you. Good morning to all of you, and thanks for attending this conference call on our second quarter and first half results. What I suggest as usual is to go through briefly our slides. I will leave the floor in a minute to William Kadouch-Chassaing, our CFO. And then we will, of course, answer your questions afterwards. So if we turn to the presentation and the first slide, let me just highlight very shortly, the main items and characteristics. First of all, we have in the second quarter, a progression of our revenues by more than 2% on a like-for-like basis and that comes from exchange rates. And thanks to a very strong discipline on cost and risk, we have also a positive return on tangible equity above 11% this quarter, 11% also for the first half. Second, we have started the journey to complete the refocusing of the group. Let me just remind you that we have a plan, I will comment on this, and we see the first decisions regarding this plan in the second quarter. Third, we are progressively putting behind us our litigation issues. In the second quarter, we put behind us the LIA and index IBOR cases. Regarding the late -- last significant regulatory litigation, regarding OFAC, although, the timing and the financial impact of the potential agreement remains uncertain, it is possible that the pending discussions could lead to an agreement in the coming weeks. And fourth, we have solid balance sheet, and we are compliant to all regulation, including the MREL requirement that we just received. William will comment more detail on this. If I turn to the next slide, let me just comment on the overall business performances. In the French Retail, we are on track in our -- regarding our transformation plan. You know how significant the transformation of the business model is, as in all Eurozone retail activities with the new technology. We have good credit flow. We are conquering clients. Let me in particular highlight that Boursorama have now reached 1.5 million clients in July, and that we target the 2-million client figure 1 year in advance. Regarding the revenues, commissions are up year-on-year. Net interest margin is still going down. We're still a low rate environment. We now have a slight decrease of revenues in mind for 2018, between 1% and 2% for this year. Regarding International Retail Banking, all our activities, all our geographies confirm the capacity to grow with positive jaws and with good profitability. It's clear that having good franchises in these non-Eurozone countries is an advantage, with good growth of retail activities as well as a more normal rate churn. It is the same with Insurance and Financial Services activities, where we have, across the board, good growth and very strong return on normative equity. So when I look at these -- look at the commercial activities, it's very clear that growth is confirmed and profitable growth. And regarding Global Banking & Investor Solutions, we posted a solid second quarter. First of all, we've rebound all of our market activities versus the first quarter of this year, but also an increase by 2% on the current parameter and on a like with constant exchange rate compared with last year. And it's still a relatively low volatility environment in Europe. And regarding Financing & Advisory activities, we have very strong performances with very solid origination. Again, I will come back in more detail. Next slide, let me just comment a little bit more about, again, the completion of the refocusing and optimization of our capital allocation. Let me just remind you that we have announced we have as an objective to refocus for the equivalent of 5% of our group risk-weighted assets through to 2020. That represents roughly a range between 50 and 60 basis points of Core Tier 1 equivalent.This quarter, we announced the disposal of 4 businesses, the signing of 4 disposals: The sale of 2 subsidiaries in Central Eastern Europe, Bulgaria and Albania; the sale of our private banking business in Belgium; and the sale of our self trade bank in Spain. These transactions will have an estimated impact of 15 basis points on the Core Tier 1. We expect these transactions to be closed in 2018, at least the vast majority. And [indiscernible] these transactions, in line what we've said, which is that we plan to announce -- we have in mind to announce for at least half of this program. We will have further announcement, we expect further announcement, in the second half. Let me mention that these disposals, which again, fit with the strategy to concentrate on businesses which have the critical to size to compete going forward, and of course, the level of synergies which justify us to keep these assets. Let me just mention that the benefit will be used on one hand to [ seize ] opportunities, if they make sense, and we have also in the second quarter announced a unique opportunity to strengthen 2 core franchises with the acquisition of Commerzbank EMC business, and of course, increase our capital ratio. Let me now leave the floor to William, who will comment more in detail our figures.
Thank you, Frédéric. Good morning, everyone. I will ask you to turn to Page 8, on the group results for the quarter. Let me point you first to the group revenues, which are up this quarter by 1% in current terms; 2% when adjusted for parameter and foreign exchange. This is mainly driven by the International division, with an increase of 6% -- in excess of 6% for the quarter when adjusted for parameter and foreign exchange. 3% for the investment bank and minus 2% for the retail bank in France.The second element, I would like to point you to is the operating expenses. As Frédéric said, we have very disciplined cost management this quarter. You need to adjust the number we provide on the page, 1.3% growth from 1 quarter from last year, with the reversal of the provision we made in the International Banking division for about EUR 60 million for the same quarter of last year. Adjusted for that factor, the costs are flat from 1 year to the other in Q2 2018. The third element is the cost of risk, I will come back on it later. It is down again this quarter, and we end the quarter with a cost of risk at 14 basis points. As the results, we have an underlying net income for the quarter of EUR 1.3 billion, up nearly 9% year-on-year, and which translates into an underlying return on tangible equity of 11.2%. It's 11% for the first half of the year in total. Turning to the next page on cost of risk, a few elements I would like to again point you to. The first one is again the cost of risk for the group, which decreases again, as I said, from 18 basis points last quarter to 14 basis points this quarter. The second element, I would like to highlight is the decrease -- the further decrease in the nonperforming loan ratio. We ended the quarter, the second quarter 2018, with a 3.9% NPL ratio, below the 4% threshold after a constant period of decrease over past quarters. And thirdly, I'd like to raise your attention to our new guidance with regard to the cost of risk. We expect the cost of risk to -- for the year to stand between 20 basis points and 25 basis points. Let me say that we consider this guidance still as a little conservative. Regarding balance sheet on the next page, a few items. First of all, on capital, we have slight decrease in the capital for the Core Tier 1 of about 10 basis points. So we ended the quarter with a Core Tier 1 at 11.1%. This is mainly due to a number of technical factors and adjustments, which I will comment if you have questions, including some TRIM adjustments. The leverage ratio is flat, adjusted for the recent decision of General Court of the European Union, which allows us to deduct some savings exemptions. The point which is very important for the quarter, as Frédéric highlighted, is the fact that we have been notified, as the other banks, on the MREL ratio by the Single Resolution Board. We can now confirm that this is 8% of total liabilities and own funds, the TLOF, that we need to comply with, which translate into a 24.36% RWA equivalent on the basis of the December '16 balance sheet. The main information beyond the notification of the threshold is the fact that we are amongst the banks in Europe that are already compliant. TLAC, we already mentioned it in the previous quarters, we're already ahead of the expected threshold for 2019, when it will be put in place, which should be at 19.75% (sic) [ 19.5% ]. You can see we ended the quarter with 21.8% (sic) [ 21.9% ]. The rest of the solvability and liquidity ratios are stable or up. I will not comment the next page on group results. With the detailed numbers, should you have questions, we obviously will be pleased to answer them.I will now turn to the business performance, starting with the French Retail. As said by Frédéric, the main message with regard to the French Retail operations is the fact that we are progressing well in our transformation. Transformation is, on the one hand, the reshaping of the business model; and secondly, the reshaping of the distribution and the operating model. With regards to the business initiatives, many of them have been announced during our Investor Day. We're pleased to see progresses. As you can see, I will not comment all of them, but the main items on the pages are we are progressing well in the selectivity of our client base and especially, the growth of the wealthy and mass affluent client base, with 5% over last year. This is associated with an increase -- further increase in AUM for the private bank in France, which are up 2.6% relative to last year, as the AUM for the private bank in France stands at EUR 63 billion. Another element I would like to point out, then I will come back to this, is the acceleration of the client acquisition of Boursorama, with 1.5 million clients by the end of July 2018. We are well ahead of schedule. The bancassurance progress well on all accounts, be it life or non-life. One area we are particularly satisfied with is the consumer credit production with double-digit growth relative to the previous quarter of last year. And overall, we're making also good progress on professionals and corporate. With regards to the business mix, things I would like to highlight are twofold: One, you can see that we have decreased discretionally the production of home loans, which is a sign of our selectivity, both on the client acquisition as well as on the risk. By the same token, we are increasing the fees this quarter. They are up 2.5% relative to the same quarter of last year. If I turn to the next page. Transformation, as I said, encompasses as well the distribution and the operating model. We are making there again good progress. We are very well in check with our plans, sometimes even ahead. So we announced the further branch closure for up to 50 branches in mature networks in the first half of 2018. We have closed one back office for the quarter, out of the 6 we have committed ourselves to close through 2020. At the same time, we have opened 75 professional corners as part of our redeployment of the initiatives relative towards professionals. The digitalization of the offer made also good progress. The dematerialization of the offer with electronic signature spread out very successfully to our clients. Also for the agents, we have developed a tool where -- allowing them through a digital interface, they have a 360-degree view on their relationship. We're also making progress on the discussions with the Works Council, implementing the new legal framework in France in our company. I would like to point you to the cost development for the quarter. We are up 0.7% in the French Retail network, adjusted for the IFRIC, it's 1.2% and for the whole half -- first half of the year, it is 2.5%. So it is, as we stand, below the 2 -- or the 3% cost development that we expect for 2018. One point which I would like to stress is Boursorama on the next page. There are usually 3 questions on Boursoramaone: Is first of all, is Boursorama capable to keep its leadership? And the answer is quite straightforward. Boursorama increases its leadership. Again, in the first half of the year, as I said, we end up with 1.5 million clients by the end of July. We produce 1 client per minute. So we are confident that we should reach the 2 million clients as early as 2019, 1 year ahead of schedule. The second question is, is Boursorama a full-fledged banking model? And there, we can reaffirm, stress quite strongly that relative to many of us, it is indeed more comprehensive to what you can find in the market. We provide you, for the first time, some data with regards to clients outstanding, whether savings or loans, as well as the growth pattern of the different products we deliver to these clients on the savings or on the loans side. You can see hefty 2-digit numbers from [ 14 to 16 ].Third question, is Boursorama profitable and will Boursorama will ever be profitable? And there, we provide you with numbers that proves the efficiency of the model at the top of the page. More importantly, we would like to stress the fact that Boursorama has a positive net income excluding marketing expenses. Let me remind you that these marketing expenses are -- the majority of them are variable. So they are directly associated to the client acquisition. Should we stop, it would -- the model would be immediately profitable. Its profitability, ex marketing expenses, has increased by 2.5x between '16 and '18. Last but not the least on the French Retail, the numbers, most of it I've already mentioned. I pointed you to the revenues decrease of 2.1% this quarter, with a mixed composition: Plus 2.5% increase in the commissions; minus 9%, around 9% on the net interest income; operating expenses, when adjusted for IFRIC, are up 1.2% or 0.7% non-adjusted for the quarter, 2.5% for the first half, I've already mentioned. Overall, despite the strong transformation, a resilient profitability. Let me turn now to the International Retail division. The story here, as mentioned by Frédéric, and as you can see on the page is a story of unambiguous widespread growth across all geographies. You can see, and we provide this number traditionally, on the left-hand-side of the page, on the top, the very good dynamic with regards to production, whether it is on the loans side or on the deposits side and across all regions. Let me point you to the, again, double-digit numbers for both Russia and Africa. European parts benefit strongly from increase in volumes, but as well, more favorable rate environments than what we see in the Eurozone, particularly in France, you can -- we provide you with the rate curves for the Czech Republic and Romania. In Russia, as already mentioned, we have very strong production. And in Africa, very strong production associated with good mastering of cost, which we intend to improve further by the launch of our new hubs. We are just launching an IT hub in Casablanca for the whole operations in the region. So overall, this translates in higher return on normative equity. As you can see, close to 20% for the European business unit; 16% for Russia; and 15%, or above 15%, for Africa. You will find on the next page some data on the Financial Services division and Insurance. And here again, you will find evidences of the strong growth dynamic in these areas. Life insurance outstandings are up 3% with an improvement, further improvement, in the share of unit-linked in the total portfolio. But personal protection and casualty are also up 7%, outstanding; premiums rate are also up 7% over the quarter. ALD fleet is up 10%; and the loan and leases outstanding for our GEF subsidiary, the vendor finance entity, are up 8% year-on-year this quarter. I would like to make a little point on ALD. The reason why we do it is because we are not really satisfied with the performance of ALD, which is one of the key growth drivers that we have stressed in our Investor Day. But it is also because we are just 1 year after the IPO of ALD. I will start with that last comment. The market cap of ALD stands now at EUR 6.2 billion, which is up 7% from the IPO. ALD is experiencing, since the beginning of the year, the best performance in this quarter -- in this sector and one of the best out of the SBF 120 companies. Now the reason why we like this story is much -- goes much beyond the IPO, it's because of the return. We can see the first half return on equity is above 26%, but it is also this combination of return with growth. And here again, we provide you with 3 elements. One, we reiterate what are the structural growth drivers of ALD and actually, we're quite satisfied to see that all of them materialized. The traditional one, which is a trend towards outsourcing of the corporates. We have seen it for a certain period of time. It continues to materialize with large corporates. We know it -- we get stronger and stronger evidences that SMEs are part of the game through our partnership, which is a unique differentiation for ALD. Societal shift, which is a shift from ownership to use with the retail consumers. It's something that we see very strongly as for our private lease, which grows by 40%. And we now see tangible evidence of the beginning of the mobility services economy, with ventures we've launched in car-sharing in Finland or Italy, and the different models of telematics or pay-as-you-drive experiences we do in different geographies. Second element, which proves a gain, too, and we expect to continue. And last is the profitability of the model: Strong revenue growth, high single-digit. You have here the numbers of the leasing contract margin and services margin, plus 7% in this half year relative to the previous year and a very satisfactory cost income ratio of about 60%, which actually improves relative to last year. And last but not least, you know that ALD is a company that is innovative and has digitalized much of its process. You can see some examples here. I mentioned already the mobility, but remember that on the resale of cars, the process is mainly digitized with car dealers. And we also launched the private lease through fully digitalized offers, whether this is in U.K. as provided by this example, or in France via an offer provided for some days by Boursorama. Overall, the numbers of the division are in sync with what I just said. Revenue increase of 6.1% when adjusted for parameter and foreign exchange for the quarters. That's quite strong. Operating expenses up 4.3% adjusted for this EUR 60 million reversal of restructuring provision I mentioned in Q2 2017. The cost of risk remains low, so you see the number up on the page. In fact, you would need to adjust for reversal of provision in Romania in the Q2 2017 for about EUR 34 million to go to the real number, which is more a decrease in the area of 20% of the cost of risk. As a result of this positive jaws, low cost of risk and high growth, we have a return on normative equity which stands at -- in excess of 18% over the quarter. Turning to the investment bank, and starting with the market operations. I would like to point you to the growth pattern this quarter of the market operations. We are up for global markets and investor services revenues, excluding foreign exchange impact, 2% over 1 year. We obviously, have much stronger growth even from a quarter to another in Q2 2018. The fixed income operations are up 2%. Equities are slightly down 1%, but again, stronger growing over the quarter. We have different sets of revenue growth, obviously, between geographies. It remains very strong in Americas -- in Asia, in Americas, through the whole spectrum. In Asia, a little softer on the fixed side, but overall, solid revenues. In Europe, obviously, we suffer a little from the low volatility environment on the flow side. We experienced very positive trends through better volatility in the segments, in commodities, ForEx and rates. Security services were very strong this quarter, such as prime services. I would like to provide you, I know this was well expected, with some more data points regarding our EMC acquisition, the market operations we acquired from Commerzbank On July 4. I won't come back on the story. If you have some questions, we are happy to answer, but you know that it is a very complementary platform. The point I would like to stress is the synergistic aspect of the platform and this acquisition. We expect the gradual transfer to happen between '18 and '20, with integration cost circa EUR 150 million over the period. The important numbers are the fact that we know -- we expect GOI, gross operating income above EUR 150 million after the transfer and the restructure of the operation. And in any case, we expect the acquisition to be accretive to the group ROE and obviously, the division ROE. I mentioned the market. I would like to point you now to the Financing & Advisory. This is similar to what I've said on the International Retail. Again, a story of strong growth over the quarter. Financing & Advisory revenues are up 8% from 1 year to the other, after neutralizing for foreign exchange impact. This is still a hefty plus 5.2% at current exchange. What we can see, it is broad-based across all financing categories, particularly strong in real estate, shipping, energy and acquisition finance.I would like to mention to you the double-digit growth of our global transaction banking operations. You know it is a key element of our growth story that we've highlighted in our Investor Day. For Asset and Wealth Management, the picture is more muted, it's a little mixed. Let me remind you that we started -- we had a very good performance in private banking in Q2 2017. Overall, we continue to increase our AUM, both for private banking as well as for Lyxor. And the margin for private banking remains in sync with the best [ numbers ] in the industry, i.e., above 100 basis points of ROA. To finish on the numbers for this division. They are -- the revenues for the total Global Banking & Investor Solutions division are up nearly 3% for the quarter, 2.9% when adjusted for foreign exchange impact. They are up 0.5% current. This is again, one area where we experience positive jaws, operating expenses adjusted for FX impact are up 1%; in current terms, they are down 1.3%. So we have, obviously, a strong jump in the net income relative to the past quarter and an underlying return on normative equity, which is very resilient at 12%. One word to finish on the Corporate Centre. Two things I would like to mention. The first one is the new allocation of EUR 200 million to the provision for disputes. We have no, as of June 30, 2018, provisions -- an inventory of stock with provision for disputes on our balance sheet of 1 -- north of EUR 1.4 billion. The second point I would like to point you to is on the gross operating income for the first half. As you can see, the number is minus EUR 200 million. Should you adjust for what I just said about the provision, it means that the gross operating income of the Corporate Centre equals to 0. Let me remind you that we have given the guidance for the full year of gross operating income of the Corporate Centre of minus EUR 400 million. I will finish there and hand over to Frédéric for the conclusion.
Thank you very much, William. Just to again say that when you look at the second quarter as well as the first half, I think that our achievements and performance correspond to our objectives in our 3-year Transform To Grow strategic plan. First of all, again, growth of revenue, second quarter, plus more than 2% on a like-for-like basis and at constant exchange rates. Second, the transformation across all our businesses, it's, I think, a fundamental element, while at the same time, maintaining a strong discipline on the cost. So we work on that and it's reflected in our figures. Also, a strong management of risks. We benefit from all the efforts in the last few years, and now we have a 14 basis point cost of risk, and across all the businesses, which I think is a good sign. And we are reducing our targets for this year to 20 to 25 basis points, probably still a little bit conservative. And we should not, of course, forget again this refocusing and the item of responsibility, it's an important thing. Beyond putting the litigation of the past behind, it's also to enshrine a culture of responsibility across all the businesses and comply with our objectives in terms of contributing to the climate change. We are now more than 50% -- at 50% of our objectives for the full period of 2016 to 2020 in terms of contributing to the financing of renewable energy. And last point before entering to Q&A, let me just invite you to a Digital Journey that we would like to organize on the 22nd of November. We want really to spend time to explain more in detail the transformation that we are implementing in our businesses. I think it's -- it is relevant. It's a revolution. It's a technological revolution, but beyond, I would say it's also a cultural revolution and it's impacting all the businesses and the functions and I think it's worth spending some time with you to explain exactly how we do that. So we are now ready with our management team to answer your questions. [Operator Instructions] And now the floor is yours.
[Operator Instructions] The first question is from Delphine Lee from JPMorgan.
So 2 on my side. First of all, just wanted to get back on, go back on the French Retail guidance. Would it be possible to get a bit of color around what you're assuming for fee growth versus and NII growth? And this guidance seems to be a little bit more negative versus peers, so I'm just wondering if there is any, let's say, negative for this year that we should be aware of, which is explaining a little bit the difference? And also, in terms of your 2020 plan, if that's the case, if it's down minus 1 to minus 2, it sort of implies 4% per year for 2019 and 2020. Is there any risk around the performance of French Retail versus the plan for top line?My second question relates to capital. Just wanted to clarify, the 11.5% CET1 guidance for year-end, is that including disposal? Or is it not? And how much of the 15 basis points disposals that you have announced is actually coming through by year-end?
I will let -- Delphine, I will let in a minute Philippe Aymerich comment on the outlook on the revenues. On the capital, let me just remind you, we target 12%, above 12% in 2020. We have effectively a target of 11.5%, around 11.5%, at end of the year. That includes -- that could include potentially, as I said, the bulk, if not 100%, of the 15 basis points that we've just announced. Let me just remind you that we have in mind an accretion of Core Tier 1 by roughly 25 basis points a year, which is geared toward the second half because of the IFRIC accounting issue, which reduced the first quarter contribution. So we will, we stick to this guidance, and then we have capacity, I think, to meet these objectives. Perhaps, Philippe, on our guidance, on the revenues and the dynamic on the 2 components.
Yes, so first thing, as you notice the momentum on the fees, it's quite strong and it reflects the shift of our business. I mean, we don't really want to focus on which kind of revenues. And during the first half of the year again, the momentum is stronger. Notably, on fees related to services and this is really important because it reflects also the growth of the customer base. Regarding the net margin and notably, the ones related to deposit, that's true that there is a significant impact. We are sensitive to short-term Euro interest rate. And because a part of the current deposit is considered as volatile, it's true that it's invested in very short term. So that's why. And also taking into account at the very beginning of the year, which was a little bit slow, we have revised our guidance for the end of the year. We are still committed to deliver over 2020. As you know, we have many initiatives in progress. We are overall in advance focusing on the key clients, focusing on the key segments. And again, coming back to my first commentary related to the fees, I think -- we think that the shift of the business is working.
Next question?
We now have a question for Mr. Tarik EI Mejjad from Merrill Lynch.
Just a couple of questions. First on the growth in RWAs. I mean, I understand why your capital went a bit backward, but one of the areas is really very strong growth of RWAs, 2% quarter-on-quarter, and that's mainly deriving from CIB or GBIS, plus 5%. So my question is do you really need to commit that much capital -- sorry, that much balance sheet to deliver actually what was a good number in GBIS this quarter? Or there is another reason that you might want to explain to us here? And second question is on Boursorama. I mean, the growth is impressive in terms of client acquisition, that's probably twice faster than N26 or Revolut in France that they used to do like 5,000 clients per week. But I mean -- and it's very difference from your growth just a year ago. So can you maybe clarify a bit how much of these are like active users or just users getting there to take some welcome credits? Because I think in the past, Boursorama was very well-known about, especially before you needed minimum income, so all the clients that were subscribed were actually, a large part of them, active users. So is there a shift towards less profitable clients now, but is it not just a race to who has the highest number of clients? So any numbers or clarification would be very useful.
Tarik, I will leave the floor to Séverin to elaborate on your first question. Philippe Aymerich also on the dynamic on Boursorama. I just would like to say one thing on these mobile banks. You cannot compare Boursorama with the kind of the banks you mentioned, whether they are new banks or even older models. We are by far, and we have been able to have figures, the #1 online bank, but with a full range of products and services. And Philippe will comment, but we have effectively active clients, if you wish, and it's much more than very, very specific and limited range of services provided, for example, by some of the other banks you mentioned. And I think really, it's a key competitive edge for us. Séverin, first of all on the risk-weighted asset and Philippe on Boursorama.
Yes, Tarik, thank you for this question. It is fair to say that this quarter, the risk-weighted asset evolution has been a bit high. But we have not taken that as a structural question. In our plan, as you know, we had an NBI growth target during the next 3 years, which is much, or more or less in line in GBIS with the risk-weighted asset evolution. So we have 1 quarter where we are consuming a bit more capital, but it's not structural and it's all depending on the type of credit we are doing. And this quarter, it's fair to say, that we have a bit high. But I remain committed and we are committed to our plan, where the evolution of the risk-weighted asset will be on line with the top line.
Philippe, perhaps you could comment on the clients in Boursorama?
Yes, Of course, client acquisition is very important, but we are also very focused to make sure that we equip these clients. And one of the strength of Boursorama, as mentioned by William, is that we do offer to our clients, the full range of products and services. And if we look at what the 2 players in the last 6 months for example, we have the significant increase of the exposure on the consumer loans levels, so what, by 40%, to be clear. We've also saw a significant increase on the deposits, on the insurance, life insurance contracts. We're also tracking many indicators that has the use of credit cards and all of them are moving in the same and positive direction. And so this is not only a race to acquire clients, but to make sure that we are also providing them all the services and products and therefore, developing the NBI.
Next question?
The next question is from Jon Peace from Crédit Suisse.
So my first question is about litigation reserves, your EUR 1.4 billion. Would you be happy to see that run to 0? Or do you think of having a sort of underlying level of litigation provisions to cover ordinary day-to-day business, plus any other sort of items you may have in the future? And then my second question was on costs in French Retail Banking. And on one of the slides, you have got a sort of indicative evolution of costs. So I just wondered how literally we can take that? In other words, after the 3% growth this year, should we be expecting, looks like, 1% to 2% growth in '19 and then maybe a 1% to 2% reduction in '20?
Jon, I will again leave the floor to Philippe on the cost side. On the litigation, let me just remind you that what we have done in the last 3 years has been a prudent regular provisioning policy on the litigation, which allowed us effectively to close -- settle for 2 of the 3 major regulatory litigations in the second quarter, in line with our provisioning. And with the slight delay on the third one, as we said, we are really exactly where we are. And let me just remind you what we've said, which is, yes, there is still some uncertainty on the financial impact and time frame. But it is possible also that the active discussions we are having could lead in a settlement in the coming weeks. So in line with this policy, we decided this quarter to add this EUR 200 million. Clearly, going forward, it's not a recurrent item. If we have this kind of time frame, we will have put behind us these litigations of the past, now which fundamentally come back to a period of pre-financial crisis. These processes can take time. We are not the only bank, where again, there are still these remaining elements. But after this, we don't, of course, have this kind of policy in mind. And we will have put all this behind us. Philippe, perhaps on the costs of French Retail?
Yes, on the costs. So maybe a first comment to mention that we are investing a lot on transformation. Not only, and I will come back on the improvement of back offices, but also in order to improve the client experience and the way we -- the clients interact with us. Coming back with the transformation of the back offices, that's correct, that the investments are huge and are taking place this year and next year. We will have the full impact of all these projects starting 2020. And yes, we expect a reduction of the operating expenses of more than 2% by 2020.
The next question is from Lorraine Quoirez from UBS.
Yes, so I have a few. The first one is on the capital structure. So your TLAC compliance well ahead of time. Your AT1s are now 2.5% of RWA. Tier 2 is 3.2%, so you're well above the minimum requirement and you actually issued some more AT1 in April. So I was just wondering, how we should see your AT1 issuance going forward and AT1 cost as the impact of profitability. My second question will be on Russia. So the regulator is going for higher risk rates for new consumer loans, above 10% lending rates, if I'm correct. I think this is starting from September and I was wondering whether this actually reduces your risk appetite?And finally on French Retail, can you remind me a little bit what sits into the other income category and whether the benefit of the ALM transaction actually sits in the NII now or whether it sits in that other income category and if you could quantify it?
Lorraine, so we will answer your 3 questions. Very exceptional, if I may say so. First of all, I will start with Didier Hauguel, who is supervising Russia, and perhaps taking some time to explain the activity and answering the specific question. Then William on our perspective in terms of AT1. And I'm not sure I fully understood your question, but Philippe might elaborate, the ALM and it's not the benefit, unfortunately, the ALM that we've just described, which is a pretty conservative ALM stance on to keep a significant part of the new deposits in the very short term, weight on the net interest margin, but Philippe will elaborate a little bit. So first, Didier?
There's no change on risk appetite in Russia. I think that we are a bit -- very conservative already. We are taking in account all the impact as assumption to adjust our risk appetite. But other than that, I think that some move of the regulatory capital from the CBR is not affecting our dynamics.
And let me just highlight that we benefit from a good retail market dynamic overall. Mortgage is growing, and we are mentioning that. And we are really considered as the most reliable bank in the market. We benefit from what happened in the market, and so we remain very positive on Russia. William, on the AT1 issuances?
Okay, thank you. As you rightly pointed out, we have, effectively, a level of Tier 1 and Tier 2, which is above the regulatory requirements. Let me remind you that we have already issued a Tier 2 and an AT1 earlier this year for a total of about EUR 2.3 billion, which is in line with what we have announced in terms of a funding program in our Investor Day. So we will -- we don't need it. We will remain pragmatic, however. We obviously are very mindful of the cost of these instruments and we only do it to -- if we can match it with proper profitability or on the leverage basis of our businesses.
Thank you. Philippe, can you answer the other...?
Yes, on the other income, so there is no element here impacting this line of revenues. It includes [indiscernible] for example, such as the part of the joint venture we have between Retail Banking and the Insurance business. There's also the results of the real estate subsidiaries, and we have also some financial operations dividends. Regarding the variance between this quarter and the similar quarter last year, the variances are coming from dividends actually, notably from [indiscernible] [ mortgage ] dividends before were included in the net interest margin. And we have also some specific financial profit regarding some investments.
Capital gains.
Some capital gains, sorry.
Okay. Next question?
The next question is from Guillaume Tiberghien from Exane.
I just want to know whether you are still committed to generate the EUR 6.50 of EPS for 2020 and dividend cash of EUR 3.20?
Absolutely. We have not changed our dividend policy. You remember -- you can see that actually, we have provisioned exactly that same ratio for the first half, and yes, we are committed to that. Next?
We now have a question from Anke Reingen from RBC.
So the first question is on the disposals you announced year to date. So I just wonder if you can give us an indication of the lost earnings as a result. And then secondly, I wasn't quite sure, did you mention in your comments about the capital ratio being impacted by TRIM? Can you please clarify?
Yes, Anke, on the second part, it's a relatively limited thing on the TRIM, and William can comment more. Can I say that on the sale, there is minus EUR 27 million impact through IFRS 5, but fundamentally, we will make, at closure, some capital gains from the sale we've just announced. I'd like to highlight that, and I think you can acknowledge, that we've been relatively effective in our sales process in the last few years. And the prices we get reflect definitely all the work which have been done to improve the resilience, quality of these assets, and I think it's the right time to sell also, because clearly, the growth perspective today, relatively good. Second, European banks, and you see here, we sell 2 industrial players. They have rebuilt capital base, so I think, really, we are effective in these processes. And I think it was the right time.
Sorry, I think I might -- sorry, maybe I wasn't quite clear. I meant, just like as you're getting EUR 150 million GOI from EMC, I'm sure the business you're selling will mean there are some earnings lost on an ongoing basis. And I was wondering on that...
You're exactly right, but if you look at the numbers, basically with what we sell, the total package, it's less than EUR 50 million net income. If it is what we buy, we are talking to you about EUR 150 million GOI, so net of tax. It's well above the EUR 50 million. You can compare the 15 basis points and the -- to the 10 basis points. You can see this is not a stupid way to reallocate capital. And with regard to your -- I hope that answers your question.
Yes.
So with regards to the TRIM, it's 4 basis points. So it's an ongoing process. So we try to adjust our models on an ongoing basis and this is 4 basis points, mostly on the credit models spread across different businesses.
Thank you. Next question?
The following question is from Azzurra Guelfi from Citigroup.
Two questions from me, both on the capital. One is -- when I was looking at the breakdown of the risk-weighted asset, the increase is mainly from credit risk-weighted asset. You had basically flattish operational risk-weighted asset quarter-on-quarter. And some peers have shown grown in this area. I just wanted to know if you have any expectation for this to expand in the second part of the year? And the second question is on the reshaping of the group, with strengthening some area with targeted acquisition. Will there be any level of minimum capital that you would not be happy to go below in case you have a fantastic opportunity ahead and you had not yet the opportunity to sell some of the asset that you are planning to?
Azzurra, Séverin will comment on your first question on the perspective of evolution of risk-weighted asset on the market risk. There is no reason on the operational risk to change. On the second question, first of all, I don't see that many splendid opportunities, but I will qualify the EMC as a quite unique opportunity, because the fit with our existing business, for all the existing EMC business, is absolutely perfect. And I think we have put some figures which reflect how accretive in terms of return on equity this acquisition will be for us. If I may, I don't see that many opportunities like this. And as I said regarding the threshold of capital, I'm very clear. We want to stick to this 11.5% guidance for the end of 2018 and be above 12% for 2020, and we stick to that. And it means that the capacity of acquisition is also, of course, limited to that. But I don't see that many opportunities which would trigger any change of strategy. So we are very clear and you will have, as I said, [indiscernible] more disposals than -- in terms of capital consumption, definitely, than in terms of acquisition, it's very clear.Séverin, so perhaps outlook for market risk, risk-weighted assets?
Is this regarding market risk or operational risk?
It's market risk and operational risk, so for you, I think...
Okay, on operational risk, there is no unusual -- the level has been stable, and very much stable over the last quarter. On market risk, as you know, it's very much linked to our, mainly our value at risk, our stressed value at risk. And as we saw during the last period of time, we maintain a very low value at risk for the market activities. So this is clearly, for me, the current stance we have in terms of risk appetite, and we don't take -- making change in our risk appetite significantly on the markets risk.
Next question?
I have a question from Kiri Vijayarajah from HSBC.
Yes, I wondered, firstly, can you just go back on the rationale for selling the private banking business in Belgium? Because I thought the aim was really to offload RWA-intensive assets rather than things like private banking, so your thought process there would be helpful. And then more generally across our disposal program, does it not make sense to maybe wait until you settle OFAC before increasing your capacity to sort of pay a potentially large U.S. fine? So again, your thoughts on the disposal program versus litigation buffers as well?
I will let Séverin comment on the private banking business in Belgium. Kiri, if you wish -- I mean, we had this debate in the last 3 years, and we're trying to find the best balance. We have a general provision, so at least -- not a specific one, which is flagged, but it is so I think again, we showed at least in the first 2 settlements that probably it was the right policy. I guess it could be the same also for the third one. But you're right, it's a fine balance and of course, we try to ponder and wait what makes the most sense from that perspective. Belgium, Séverin?
Yes, our position in Belgium is a limited one, as you should know. And the market in Belgium private banking industry is very well crowded. So we were in a position where we think we could not achieve our target in terms of development and in terms of a return. And that is the reason of our decision. And it is a EUR 6 billion assets under management in this Belgium subsidiary. And in terms of risk-weighted assets, it's a bit over EUR 1 billion, and with a return which was nothing where we wanted anyway. So it's a really a refocus on the geographies where we think we have the critical size and we can develop and have the right return we want.
Next question?
The following question is from Flora Benhakoun from Deutsche Bank.
The first question is regarding the capital and more specifically, the regulatory risk. I'm thinking, for example, at the operational risk, where I'm sure you've seen that one of your competitors announced a move towards more use of the standardized method. So is it something that, for example, you will also need to do? And more generally, with the recent settlements on the LIBOR and the LIA, could that translate into higher operational risk RWA, for example, at the end of this year? And the second question is regarding the Corporate Centre clean gross operating income guidance. Just to make sure I understood correctly, you reiterate today the guidance of negative EUR 400 million, right, despite the very strong performance in H1?
Regarding, Flora, your first question, we don't expect any change on the operational risk calculation, any specific element coming also coming also from the first 2 settlements. You know that, of course, the big reform is more related to the Basel IV one, which could be something proportionate on the revenues, at the [indiscernible] that's not for tomorrow. So nothing, at least on our side. And if I may say on the Corporate Centre, probably the guidance remains a little bit conservative, even if there are some volatility elements which makes us stick to it. William?
Yes, it's a combination of seasonality elements and volatility elements in the Corporate Centre, which I think has been well explained to you over the past years. It means that we want to remain cautious, but effectively, you're right. It's probably on the conservative side at this stage.
Next question?
We now have a question from Mr. Bruce Hamilton from Morgan Stanley.
Firstly, just a question sort of on capital allocation and the loan book. I guess, going back to the, I think, Slide 42, your exposures or outstandings in GBIS have grown by 12% Q-on-Q. Obviously, a lot of that's structured finance, real estate and some of the areas you mentioned. And yet, French Retail is shrinking. Now I know in mortgages, you've stepped back. But in the corporate space, it also looks like you're under-growing the market. Is that an intentional position given your perception of risks in those 2 areas? Or is Q2 kind of extraordinary in terms of the opportunities you saw in your sort of structured financing unit? And then secondly, in terms of the cost of risk, obviously, you've continued to beat expectations and you've given us new guidance for '18. But as we think a few years out and as we come towards the later stages of the cycle, could you help us think about the range in terms of what a good and a bad year might look like? Because clearly, if you're still trying to build to the right capital levels, that will become potentially a bigger concern. So versus the cross cycle, what's the sort of volatility around the cross cycle cost of risk you would expect through sort of good and bad times?
Bruce, first of all, let me say, I'm personally happy with the 3% growth that we see, both actually for the corporate loans. In France, it's actually, when you look strictly at corporates and beyond local authorities, it's higher than that, but let's say we are happy. And it's not, I think, a question of risk, but it's also a question of we want to focus on an allocation of capital which is profitable.Second, on the mortgage, we have effectively, yes, registered to just book too much loans at very low fixed rate with -- when we felt the clients would not in the long term be that profitable and where the cross-selling opportunities would be limited. I know that in other markets, we have exactly the same thing. Some players are more conservative on the mortgage, and I think it's the right policy. So if you wish, it's not a risk perspective, it's more of risk-reward, long-term risk-reward perspective, which is driving this attitude. Regarding the -- on the GBIS that you just mentioned, Séverin already commented. We all look at the quarterly figures. Let me just say you can have things like more, more pipeline in terms of underwriting at some point. So I think we need to take a step back. We are very [ constant on ] strategically. We have our financing activities. We are one of the world leaders. We are again, posting very strong leadership positions, end of the second quarter, as Séverin can elaborate, if you want to go more in that. These are very resilient activities, lower cost of risk because we structure well the transactions. So we are happy with the strategic allocation of capital presented 6 months ago. We will need to be a bit careful at looking at the rate quarterly figures. Regarding the cost of risk, I'd like really to highlight that again, it's not just the result of the environment. The environment is good. Growth is good. Financing conditions are still very good. It is the result of a multiyear effort to improve the credit origination, to improve the recovery processes and it is reflected in a low cost of risk everywhere, including in countries with higher rates. It's across the board and I think we have, effectively, the benefit of all these efforts and a credit portfolio which is a good quality. We have said that yes, we expect a progressive normalization, why we reduced the guidance for this year. If you take more a kind of mid-cycle approach, we have said something like 35 to 40 basis points, if I remember well, at the group level. We have, of course, some differences. We have here today a cost of risk in IBFS which is more or less in line with the French one, which will go up a little bit more, normally, at 70 basis points. We stick to that. In French Retail, something like still [ 35 ] probably in mid-cycle. We'll see whether maybe there is some improvement, perhaps. But again, what we have in mind some kind of normalization, taking also into account the IFRS 9 effect in the different cycle. But it's something which will be moderate, and I would like again, to highlight the high quality of the portfolio. This is not just for this quarter. We have, in the last quarters, regularly posted a low cost of risk in absolute terms but also in relative terms. Next question?
The following question is from Stefan Stalmann from Autonomous Research.
Yes, I would like to come back to the French Retail cost base a bit, please. And thank you very much for the helpful disclosure and the breakdown of where the growth is coming from. I'm wondering a little bit why the run part of your cost base is still growing at almost 1%, given quite a lot of the CapEx that you have already made in 2017 on your branches, on your call centers, et cetera. And if this underlying run part of the cost base continues to grow at 1%, how do you want to get back to the kind of dynamics that will make you reach the 1% cost CAGR target for the 4-year period? And related to this, thank you also for the Boursorama disclosure points. If I make some really high-level assumptions about what it costs to attract a new client, it would be possible probably to explain all your run rate cost growth by the growth of your acquisition cost in Boursorama. Do you think that's fair? Or do I overestimate the acquisition cost in Boursorama?
Let me highlight the second question is -- requires a short answer. The marketing cost are actually deducted from the revenues in Boursorama.
All right.
So that's reduced the revenue line a bit, the bulk of it, not all of it, but a significant part of it. And as we've said, very important to understand that these marketing costs are very flexible. And fundamentally, we've decreased and are decreasing the last quarters regularly. So we are again very positive on Boursorama. It's fair to say the mix of Boursorama in the retail deteriorates to a certain extent over all the figures because we are in this acquisition mode. Regarding the traditional network, if I may say so, on the run, again, we will not keep the same figure, but Philippe, perhaps you can explain at what stage we are exactly in the transformation and the benefits of the cuts today.
Yes, I think we have to be clear. We have not, as I said before, captured yet all the benefits of our transformation. So yes, we are adjusting our platform. Just taking the example of what we have done, we have branch closures during the first half of the year. We have closed, again, 50 branches in Société Générale and in Crédit du Nord. But all the effort regarding back office, as I said, will really come, we think, the next 18 months through to 2 years. So yes, really the turning points will occur in 2020 and 2021. Regarding the cost of -- the running cost for this year, you also have to take into account that we are taking the -- we are including some regulatory cost renegotiation on various issues, which of course, are kind of exceptionals and will not continue in the future.
Next question?
We have a question from Pierre Chedeville from CM-CIC.
Yes, I have one question regarding your positioning in shipping, because I was surprised to see that you mentioned shipping as one of the best performing loans you did this quarter. And in my view, we are retiring, more or less, from this activity -- withdrawing, more or less, from this activity, sorry. And I have also a question regarding ETF and smart beta. You said that you had a little less performance this quarter, if I am correct. And when I heard the conference call of Amundi, I understand that they have good inflows regarding ETF, but bad ones regarding smart beta. Is it the same for you? Or is it different?
Pierre, I will turn to Séverin, as he has all the answers on your questions.
Regarding shipping, we are, as you know, a small player in the shipping industry for -- and we have been very focused on some specific subsegments of this industry for a very long period of time and we are still there. And today, keeping those focus on more the best-rated counterpart and the more specific ships we have already financed. We have got some opportunity. So it's fair to say that this quarter, we had a good dynamic in our strategy in terms of shipping finances, that's the point. So basically, it's not a big business for us, as you know. Regarding your second question, as regarding ETF, it's fair to say that the revenue on our ETF activity has been a bit subdued this quarter regarding [ income ]. And we are not in terms -- it's not really in terms of new money collection but more in term of market evolution.
Thank you. Next question?
The next question is from Jean-Francois Neuez from Goldman Sachs.
I just wanted to ask on the pricing environment, the competitive environment in France. We are seeing from the data from the Bank of France that pricing is under renewed pressure at this stage. And I just wanted to try to understand that from your vantage point, how you're seeing these developing and are you seeing either increase or decrease in that competitive environment? Essentially, where I'm coming from is that with 5%, 6%, 7% volume growth at industry level, it's very surprising, I find, to see this amount of pricing pressure of loans. I just was just trying to understand where we are in the cycle of pricing, essentially of fund book pricing? My second question is on the investment bank. In general, now your global peers, almost all your global peers, if not all your global peers, have Core Tier 1 ratio which is above yours. And it's the second quarter where in capital markets, you've been lagging the broader peer group in terms of progression, even including in U.S. dollar to be comparable for everyone. I just wanted to know what you would choose if you had to meet your capital objective versus maintaining your market share going forward and whether you believe that maintaining those market shares will require putting down more balance sheet commitment from here on?
Jean-Francois, I will let Philippe answer. I don't think that the French market is that different from other European markets, where some players are fundamentally having a policy of volumes. We, as I said, want to keep a selective origination, because probably, we will focus more on the profitability and the optimization of the capital allocation. Philippe will comment more. On your second question, first of all, let me just fundamentally highlight that we see exactly the same thing in the second quarter than the first, which is that U.S. markets are more dynamic and provide more opportunities today than European ones. It's very clear in terms of volatility environment and also it's true in terms of IPOs, et cetera, et cetera. The level of activity is overall better. Depending on your business mix and geographical mix, of course, you have more or less dynamic, and we see ourselves in our own portfolio of activities. Will it last forever? I'm not absolutely sure. We will maybe discuss that in 12 months' time, but depending on how the growth outlook in the U.S. will be. what I'm just saying is that here, the strong influence of the immediate time, we tried to build for the longer term. As I said, with the view in Europe, the whole regulatory framework, the whole political objectives, is to have a better balance between bank and capital markets to finance the economy. And that there are not so many players which can take advantage of that. And I'd like to highlight that I think in terms, as I said, of league tables, we probably have the best ranking that we ever had in the last years in different DCM markets and others. So we stick to the strategy. And I think, of course, we -- the monitoring of the capital ratio is a strong commitment that we have, and we adjust and we monitor our risk-weighted assets and capital allocation to ensure that we stick to that and -- I mean, we delivered in the last years on this. And of course, that remains the main objective, and we are not market share driven for the sake, generally speaking, of being market share and volume driven. So clearly, we are disciplined, I think, in terms of attaining our capital ratios. Philippe, perhaps where do we stand more precisely on the cycle in pricing?
Well, that's true that there is definitely a lot of liquidity on the market, and on the day-to-day, we definitely feel these pricing pressure. As explained by Frédéric, we are really trying to find the right mix between the volume and the pricing and also, of course, taking into account, both for individuals, professionals or corporates, the fact that we want to develop long-term relationships with our clients and sell a full range of products and services. That's why we are definitely focusing on our target clients. The pricing is especially -- I mean, put pressure is significant notably on mortgages. Just to give you a number, it's true that our margin for the first -- I mean, for the second quarter on production was 19 basis points, so toward the year, approximately 25 basis points below last year. There is also a pressure on corporate. But again, we are trying to maintain the right level of margin and taking into account the full life of duration with the clients. And of course, there is capital [indiscernible]. For example, we have been very cautious on some LBO deals.
The next question?
The next question is from Maxence Le Gouvello from Jefferies.
I have 2 questions. The first one is regarding the origin to distribute. You said previously in a few quarters that was the reason why the growth in corporate activities in France was more limited than the others. Can you give us a point on that element? And also, can Séverin give us more color on how is it implemented into the investment banking? Second question will be for Didier in Russia. You did very strong, one of your best performance in terms of profitability, at 16% ROA. Can you give us more color? Is it a one-off or can we expect more in the future?
Maxence, so I will jump to Séverin and Didier. Séverin, origination and distribution, how do we manage this?
As you know, we have now, since the last 6 years, completely quit in terms of [indiscernible] to distribute. So we are monitoring our risk, because as I said, [indiscernible] for the level of distribution, clearly. And we're moving on that, also leveraging on our other target we have is to increase the fees and commission in -- and we -- so we have some [ collars ] and in the case of [ collars ] probably some more exposure, and we'll have more underwriting fees and more advisory fees, and then we can adjust our consumption of capital through our OTD processes. So I don't know it's what -- it's specific to your question, but we are completely operational on that process, and it can vary and today, we are probably keeping more on the balance sheet for this time being than we were, for example, some time ago.
Yes, that was my question, is in terms of piloting more or less. So which means that if you keep more, the yield that you have is much interesting than previously, or you have less constraint on the capital side on the group?
No, we are monitoring and managing our capital consumption for this OTD ratio and fair to say that in our current origination, we have good return, and that is the reason why we keep on -- and we can adjust that very quickly.
Didier?
Yes, Maxence, the impact -- there is no exceptional items in this performance. It's in line with our plan and I think that it's fair to say that during the crisis, we have invested a lot in the platform to make it a better bank, and it's paying off. And basically, this brand is getting attractive. It's getting attractive on the labor market, where we can attract talent. And it's getting attractive vis-à-vis clients. That is the dynamic taking place. You can see it on the taking of the retail production. You can take -- see it on the attraction of deposits, as we have double-digit rate growth. And you can see it also on the digital profile of the bank. And for instance, out of 350 outlets, already 86 of them are equipped with biometric recognition for clients, and as this bank is one of the pilots of this very unique initiative from the Central Bank.
Thank you. Next question?
The last question is from Lorraine Quoirez from UBS.
I have one last question, it's regarding the book value per share. I can see it declined this quarter. Can you perhaps give some explanation?
William, do you have the explanation on the book value decline? Is it OCI or things like this? The dividend, maybe?
This is for the IFRS impact, IFRS 9 impact, yes, the EUR 1 billion hit on the first half.
So IFRS 9 is probably the explanation, Lorraine. We can come back to you with more detail, if you wish.
Okay. Because I thought IFRS 9 was a Q1 story.
It's -- what I suggest is we will review that with you more in detail, okay?I understood that there were no more questions, yes? You told me it was the last one.
Yes, it was. Are you ready to take the next one or do you want to conclude?
Last one, yes.
The next one is from Nick Davey from Redburn.
Two last questions, then, from my side, just to wrap things up. The first on operating leverage. I mean, part of the key pillar of the plan was always to do revenue growth above cost growth for the group and each of its divisions. And just looking through the trend in the first half, cost growth is outpacing revenue growth in all of the divisions. So just a high-level question, maybe to summarize when you think the turning point is where that positive operating leverage will be evident across the business? And the second one, maybe also just to wrap up on this capital debate. I suppose your target for 12% CET1 by the end of 2020 means 90 bps from here to there. I mean, I just suppose I'm struggling a bit with the equation. That if you do, do this 10-ish percent return on tangible, I'm seeing credit growth accelerating in France, 6% credit growth in the international business, I just can't quite get the math to work, with a 50% dividend, that growth and 90 bps of capital. So do you feel you have all the capital you need to support the lending growth you're seeing in your businesses?
Yes, Nick, and first, let's link the 2 because -- it's not fair to say that the costs are increasing more. And actually, we demonstrate a strong cost discipline. As we said, putting aside the one-off effect base in 2017, from this write-back provision, we are basically, we have costs which are flat. And when you look at the divisions, you have a different picture. You have French Retail, where yes, we still see a decrease of revenues at a time where we tend -- we feel we have to absolutely to invest to transform the business. And we will again explain, and we have explained, the dynamic of the cost base. We will get the benefit in 2020 and beyond, I think it's important to understand this, of these investments which are critical just to maintain the business going forward. In terms of return on normative equity, we stand at still 12% regarding this French Retail. With a credit increase of 3% of the outstandings, and the idea is to maintain this. I don't think that there will be an acceleration. I would like to insist we are driven here by a risk-reward element. Just booking, as we said, very low-margin credit for 15 years of mortgage, with a limited upside going forward in terms of cross-selling for us does not make necessary sense. Second division, International Retail, Financial Services here, here we have positive jaws, I'd like to insist, positive jaws, growth drivers, and very strong return on normative equity, which effectively, can finance its growth. And then the CIB, a slight increase this quarter, first half overall stability on a like-for-like basis. The costs are not increasing neither, and we have effectively more dynamic risk-weighted assets increase this quarter. But as we've said, also there are quarterly elements. So yes, we are confident with the management we do of our capital allocation, risk-weighted assets, with the operations we have in mind, yes, we are confident to meet our target in terms of capital ratio, which are 11.5% at the end of this year and the 12%, above 12% in 2020. And we think that with the business mix we have, it's the kind of ratio which makes sense. Okay, so I suggest that we stop here. Thank you again for your attention. I wish you, if you have the opportunity to take some holidays, happy holidays, relaxing holidays. And we'll see each other very soon, going back. Thank you very much.
Ladies and gentlemen, thank you all for your participation. You may now disconnect.