EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks, reports 2018 first quarter results.Jean-Laurent Bonnafé, you are the CEO of BNP Paribas. Welcome!
Jean-Laurent Bonnafé: Thank you!
EBM: What are the highlights of the Group’s first quarter results?
Jean-Laurent Bonnafé: In the first quarter, business activity continued to progress well at Group level in the context of economic growth across Europe.
Revenues of the operating divisions were 1.4% lower on the back of a negative FX effect and a less favourable market context for Fixed Income activities in Europe than in the first quarter 2017. This weighed on CIB’s revenues whereas Domestic Markets revenues were a bit higher and IFS marked a good increase.
Costs of the operating divisions were stable net of the impact of annual taxes & levies that are fully accounted in Q1.
Cost of risk at Group level was still at a low level, at 32 basis points, essentially in line with last year.
The Group’s net result stood at 1.6 billion euros, just 3.8% lower than the same quarter last year net of exceptional items and of the impact of annual taxes & levies. This translated in an annualised Return on Equity of 10.2% excluding exceptional items or 11.9% in terms of Return on Tangible Equity.
In terms of financial structure, the Group is well capitalised and the fully loaded Common Equity Tier 1 ratio stood at 11.6% at the end of March.
Globally, I would say that these results are solid and in line with our 2020 plan trajectory.
EBM: What are the main drivers for your domestic retail banking in the current context of robust economic growth? How are you progressing with the rationalization of the branch networks?
Jean-Laurent Bonnafé: Our Domestic Markets confirmed good business drive in Q1 on the back of robust economic growth in the Eurozone. In fact it continued to show good loan growth in the retail networks and in the specialised businesses combined with an increase in deposits across all geographies.
Our Private banking showed good net inflows in the quarter and Hello bank! attracted 110,000 new clients in the first 3 months of the year.
Domestic Markets is progressively developing new client experiences and pursuing its digital transformation. In particular it is speeding up clients’ use of mobile banking services by releasing new features in mobile payment systems. As an example, client acquisition through digital channels now accounts for roughly one third of new customers and active mobile users are up 21% compared to last year with an average of 17 monthly connections.
We’re also adapting the offer to different banking uses with Nickel in France, which has already opened 900,000 accounts, and the universal mobile payment solution Lyfpay, which has some 2,500 downloads per day will soon also be made available in over 500 Casino outlets in France.
In conjunction with this, we continue to simplify and optimize our branch networks. In France, the delayering of the regional management set-up is being implemented this year, as has already been done at BNL in Italy and in Belgian retail. This will shorten decision-making processes, improve operating efficiency and reduce costs.
In terms of P&L, revenues were 0.4% higher at close to 4 billion euros. As mentioned, we saw good business drive in our domestic markets but as expected we continued to be impacted by the low interest rate environment.
Operating costs were a bit higher also due to the impact of taxes booked this quarter for the full year under IFRIC 21. Taking just the retail networks and excluding the IFRIC 21 impact, costs were actually down 0.3% on average while they were higher in the specialised businesses on the back of their continued development.
Given a reduction of the cost of risk in particular at BNL in Italy, pre-tax income reached 658 million euros, marking just a 1.5% reduction excluding the IFRIC 21 impact.
To sum up, our Domestic Markets saw good business drive and revenue resilience despite the headwind of the low rate environment.
EBM: Beyond the Eurozone, how has your international retail banking fared this quarter?
Jean-Laurent Bonnafé: Our International Retail Banking confirmed good business drive in Q1 with total loans increasing by 3.8% at constant scope & exchange rates.
Taking Europe-Med first, business activity continued to progress well with in particular good loan growth in Turkey and deposits increasing in all regions.
We continue to strengthen our digital offering for example at TEB in Turkey we’re gradually rolling out a new branch format which includes digital services via a new generation of ATM.
In April we also announced that we’re strengthening our presence in Poland through the acquisition of the core banking operations of Raiffeisen Bank Polska. This will allow us to reach a market share of above 6%, reinforcing our number 6 position in Poland, with a positive impact on the Group’s net Earnings Per Share of +1% in 2020.
Coming to Europe-Med P&L, at constant scope & exchange rates, revenues were up 7% on the back of the good volume growth I mentioned. Costs increased as a result of the good business development but at a lesser pace than revenues. Overall, given an essentially stable cost of risk, Europe-Med’s pre-tax income was up 17.6% in 1Q18 on a comparable basis.
Turning to US retail banking, BancWest confirmed good business drive in 1Q18 but, in euro terms, was of course impacted by a 13% depreciation of the US dollar.
At constant scope & exchange rate loans were up 4.2% while deposits increased by 9% compared to last year.
The assets under management of our private banking marked a further progress of 11.6% to stand at 13.3 billion dollars. And on the digital front, BancWest opened some 8,000 accounts on line in 1Q18, twice the number of the previous year and representing over 20% of total account openings over the period.
Still at constant scope & exchange rate, revenues were up 3.5% on the back of volumes growth. Costs were kept well under control and BancWest generated a positive 1.8 points jaws effect. On the whole, given an essentially stable cost of risk at a very low level, BancWest’s pre-tax income increased by close to 9% on a comparable basis. Given the unfavourable FX effect I mentioned, it was -8.5% at historical scope & exchange rate.
So, in a nutshell, good business drive and solid operating performance for BancWest but unfavourable FX effect.
EBM: Your Personal Finance is a fast growing business with leading positions across Europe. What are the highlights for the first quarter of the year?
Jean-Laurent Bonnafé: Personal Finance continued to show good business drive in Q1. Outstanding loans were up 12% on a comparable basis thanks to high demand across Europe on the back of the favourable economic context and the positive effect of new partnerships. The business also continued to implement successfully the integration of the GM Europe financing business acquired last year. It continued its digital transformation with 72% of contracts already signed electronically in France, Italy and Spain.
In terms of results at constant scope & exchange rates, revenues progressed by nearly 8% in connection with higher volumes and the positioning on better risk products. Costs grew 4.9% excluding the impact of IFRIC 21, as a result of good business development.
Cost of risk was at a low level and pre-tax income reached 373 million euros, up 5.5% on last year.
To recap, in a favourable context in Europe, Personal Finance continued to show good business drive and strong income generation.
EBM: How have your savings businesses performed in this first part of the year? Have you continued to benefit from net inflows?
Jean-Laurent Bonnafé: The total assets under management of our savings businesses stood at slightly more than 1 trillion euros at the end of March stable as compared with year end 2017. In 1Q18 we actually saw net asset inflows of 12.9 billion euros with a positive contribution from all business lines but performance and forex effects were negative.
Taking the Insurance business first, it continued to show good business development both in terms of savings and protection insurance. We saw good growth in France and also internationally while net asset inflows into unit-linked policies marked a further significant increase.
We continued to develop growth initiatives as for example in Japan where we are about to launch new products in partnership with the SuMiTrust network and in France where jointly with Matmut we’re launching this month car & home insurance products.
In terms of results, Insurance revenues were 10.8% higher due to the good business development. Costs evolution reflected the continued development of the business and, including a good performance of the associated companies, pre-tax income marked a 13% increase to stand at 369 million euros in 1Q18.
Turning to Wealth & Asset Management, it also showed good business development in all business lines.
Wealth Management announced the acquisition of ABN Amro Luxembourg, Asset Management continued its digital transformation using for the first time the blockchain technology for fund subscription, and Real Estate confirmed significant business growth, in particular in Germany where it’s a leading property service provider.
In terms of P&L, Wealth & Asset Management revenues progressed by 2.8% despite lower capital gains in Asset Management compared to last year. Costs increased on the back of the development of the business and were impacted by some specific projects in Asset Management and by costs related to the acquisition of Strutt & Parker in the UK. Bearing in mind a non-recurring net provision write-back in the cost of risk in Q1 of last year, pre-tax income marked a 14% reduction in 1Q18.
To wrap up, good business growth for our savings businesses in 1Q18.
EBM: Volatility has recently made a comeback but market conditions have been generally mixed, especially in Europe. How have your CIB business lines fared in such a context?
Jean-Laurent Bonnafé: Our CIB has faced a less favourable market context in Europe compared to the first quarter last year which had seen strong client volumes. However, the division continued to successfully develop its business activity.
CIB’s revenues stood at 2.9 billion euros, down 9.8% compared to the high comparison base of Q1 last year, with a negative FX impact accounting for
2.9 points of the reduction.
Taking the business lines one at the time, Global Markets’ revenues were down 14.6% as the pick-up in volatility seen from the end of January resulted in a wait-and-see stance by European FICC clients and an increase in volumes in Equity & Prime Services.
FICC revenues were actually down 31.4% compared to a very high base in 1Q17 which had seen strong client volumes in Europe. We confirmed our strong positions on bond issuance where we ranked number 2 for all bond issues in euros and number 8 for all international bonds.
Equities revenues, on the other hand, showed strong growth of +19.3% on the back of higher client volumes in equity derivatives.
Looking at Securities Services, revenues increased by 5.7% on the back of good growth in assets under custody & under administration. Securities Services continued to gain significant new mandates, as for instance with Intermediate Capital Group, and finalised its strategic partnership with Janus-Henderson in the US with 138 billion dollars of assets under custody. In Q1 the business line also announced the acquisition of the depositary banking business of Banco BPM in Italy. Besides this, Securities Services continued to develop joint offers in co-operation with Global Markets in areas such as execution & netting of derivatives and in collateral management.
Finally, Corporate Banking revenues were impacted by an adverse forex effect for 5.7 points and decreased by 8.8% compared to 1Q17 which reported a high level of fees. Corporate Banking revenues decreased in the Americas due to the forex effect and the decision to stop financing non-conventional oil & gas, were slightly lower in Europe and increased in Asia-Pacific. Transaction banking showed however a good performance in Europe and in Asia. The business strengthened its client positions on large corporates in Europe where the penetration rate in Cash Management reached 41% and that of Corporate Banking arrived at 65% according to the latest Greenwich survey. Let me finally mention that the pipe of new transactions is good with several significant mandates to be executed in the coming months.
Turning to total CIB costs, they were 4.7% lower versus 1Q17 and 7.2% lower excluding the impact of IFRIC 21. They benefitted from the cost efficiency measures that we’ve been implementing in the CIB division since 2016 and that have already generated 297 million euros of recurring savings. CIB continues to be pro-active in this area with the automation currently under way of some 200 processes and the implementation of three so called End-to-End projects such as for example credit process.
Cost of risk marked net write-backs this quarter, as in 1Q17, but to a lesser extent.
Overall, CIB generated 558 million euros of pre-tax income, marking a 15% reduction excluding the impact of IFRIC 21 compared to a first quarter 2017 that had benefitted from a favourable context for FICC activities in Europe.
EBM: Are your results in line with the trajectory that you had set in your plan for 2018?
Jean-Laurent Bonnafé: As I said, BNP Paribas delivered a solid performance this quarter with a net result of 1.6 billion euros.
Business activity is progressing well in the context of economic growth in Europe and the Group is strengthening its competitive positions. Costs are well under control and cost of risk is still at a low level.
Even though the market context was less favourable in Europe compared to the first quarter 2017, these results are in line with the trajectory of the 2020 plan and the achievement of its targets.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
