EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks, reports 2018 second quarter results. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas.
Jean-Laurent Bonnafé: Thank you!
EBM: What are the highlights of the Group’s second quarter results?
Jean-Laurent Bonnafé: The Group delivered solid results this quarter. Business activity continued to progress well in the context of economic growth across Europe. As a result the Group’s outstanding loans increased by 3.7% year-on-year.
Revenues of the operating divisions were up 1% with strong growth of International Financial Services, essentially stable revenues at Domestic Markets in the context of low rates, and a negative forex effect and a less favourable context for FICC activities in Europe than in the second quarter 2017.
Costs of the operating divisions progressed on the back of the continued development of the specialised businesses. They were down in the retail networks and in CIB.
Cost of risk at Group level was significantly lower coming in at 29 basis points.
The Group’s net result reached 2.4 billion euros, stable compared to the same quarter last year and equating to a Return on Tangible Equity of 11.2% for this first part of the year.
In terms of financial structure, the Group is well capitalised and the fully loaded Common Equity Tier 1 ratio stood at 11.5% at the end of June.
EBM: Economic growth in Europe remains robust despite a slight slowdown. How has your domestic retail banking performed in this context?
Jean-Laurent Bonnafé: Our domestic retail banking confirmed good business drive in the second quarter on the back of robust economic growth in the Eurozone. Our Domestic Markets continued to show good loan growth in the retail networks and in the specialised businesses as well as an increase in deposits in all countries.
Private banking showed good net asset inflows in the quarter and Hello bank! attracted 75,000 new clients in the second quarter.
Domestic Markets is progressively developing new client experiences and pursuing its digital transformation. It is swiftly implementing new functionalities such as accounts aggregation, electronic cheque deposit and digital invoice payment, and in France we’ve been ranked as the top bank for mobile functionalities by D-rating, a specialised agency.
We’re also adapting the offer to different banking uses in France for example with Nickel which has already opened 950,000 accounts, and Lyfpay, the universal mobile payment solution, which has over 820,000 downloads to date.
In conjunction with this, we’re deploying robots to automatize processes. At Domestic Markets level we already have 150 operational robots with a further 120 being added by year-end. At the same time, in our French retail banking, we’re implementing the delayering of the regional management set-up that we expect to have fully completed by year-end.
In terms of P&L, revenues were almost stable at 3.9 billion euros. As mentioned, we saw good business drive in our domestic markets but as anticipated we continued to be impacted by the low rate environment.
Operating costs were somewhat up with an increase in the specialised businesses on the back of their continued development but marked a 0.5% reduction on average in our retail networks.
Given a reduction of the cost of risk in particular at BNL in Italy, pre-tax income topped 1.1 billion euros, marking a significant 7.6% increase compared to last year.
To sum up, our Domestic Markets saw good business drive and income growth despite the headwind of the still low rate environment.
EBM: Looking beyond the Eurozone, what are the main takeaways from your international retail banking this quarter?
Jean-Laurent Bonnafé: Our International Retail Banking showed strong business drive in the second quarter despite an adverse foreign exchange effect.
Looking at Europe-Med, business activity continued to progress well with good loan growth and deposits increasing in all regions.
Our digital banks in the region are continuing to win new clients with Cepteteb in Turkey at 560,000 clients and BGZ Optima in Poland at 217,000.
We also continue to strengthen our digital offering for example in Poland where the recently launched Gomobile App to manage accounts via smartphone is proving to be a success with over 140,000 downloads in six months.
Turning to Europe-Med’s P&L, at constant scope & exchange rates, revenues were up over 16% on the back of higher volumes and margins alongside a good level of commission income. Costs increased as a result of the good business development but at a much lesser pace than revenues, generating a significantly positive jaws effect. Overall, given a lower cost of risk this quarter, Europe-Med’s pre-tax income surged 53% to stand at nearly 200 million euros. Given the unfavourable forex effect I mentioned earlier, pre-tax income increased by +31.5% at historical scope & exchange rate.
Turning to US retail banking, BancWest confirmed good business drive in the second quarter although it was impacted by a 7.6% depreciation of the US dollar versus the second quarter of last year.
At constant scope & exchange rate loans were up 3% net of a securitization in the fourth quarter 2017 while deposits increased by 5.5% compared to the same period last year.
Private banking’s assets under management progressed by 6% to stand at 13.4 billion dollars.
In terms of cross-selling with other Group businesses, the number of deals with CIB marked a significant increase and we’re getting ready to launch a new auto loans offer leveraging Personal Finance’s expertise in this area.
Still at constant scope & exchange rate, revenues were up 3.9% on the back of volume growth. Costs were kept well under control and BancWest generated a positive jaws effect in the quarter. On the whole, given a very low cost of risk in the second quarter, BancWest’s pre-tax income increased by 22% on a comparable basis. Given the unfavourable forex effect I mentioned, it was +12% at historical scope & exchange rate.
So, in a nutshell, very good business drive and strong income growth for both Europe Med and BancWest this quarter but unfavourable forex effect.
EBM: Has Personal Finance confirmed its strong business drive in the second quarter of the year?
Jean-Laurent Bonnafé: Indeed. Personal Finance continued to show strong business drive with outstanding loans progressing by 12% on a comparable basis thanks to high demand across Europe and the positive effect of new partnerships.
The business line also continued to implement successfully the integration of the General Motors Europe financing business acquired last year.
Personal Finance has continued to implement its digital transformation with the international roll-out of its new CRM system Visir. As an illustration of the digital development, I can also mention that already more than 22 million monthly statements are issued in digital format representing 72% of all statements.
In terms of results, revenues progressed over 13%, or 9.3% on a comparable basis, in connection with higher volumes and the positioning on better risk products. Costs increased by 16%, or 8.3% on a comparable basis as a result of good business development.
Cost of risk was at a low level this quarter and pre-tax income reached 450 million euros, slightly up on last year.
Summing up, in a favourable context across Europe, Personal Finance continued to show strong business drive and good operating trends.
EBM: What can you say about the performance of your savings businesses this quarter? How have assets under management evolved?
Jean-Laurent Bonnafé: Starting with the assets under management of our savings businesses, these increased to 1 trillion and 60 billion euros at the end of June progressing by 2.7% year-on-year. In the first part of the year we actually saw net asset inflows of 13.4 billion euros with a positive contribution in particular from Wealth Management and Insurance. The performance effect for the period was negative whereas the forex effect was marginally positive.
I’d like to underline that over the past 3 and a half years, our savings businesses have added 166 billion euros of assets under management of which nearly two thirds deriving from net asset inflows.
Taking now the Insurance business first, it continued to show good business development with strong net asset inflows into unit-linked policies which represented two thirds of net inflows in the first half 2018.
Also, the launch of our protection & casualty insurance offer in the French retail, thanks to the joint venture between Cardif and Matmut, has got off to a good start with 30,000 contracts already sold between May and June.
In terms of results, Insurance revenues were over 18% higher. Costs progressed at a lesser pace than revenues on the back of the continued development of the business and pre-tax income marked a 17% increase to stand at 440 million euros in the second quarter.
Turning to Wealth & Asset Management, it also showed good business development.
Wealth Management retained the prize of “Best European Private Bank” at the WealthBriefing awards for the second year running, Asset Management continued to broaden and adapt its offer, and Real Estate confirmed strong business growth, in particular in Advisory in Germany and France.
In terms of P&L, Wealth & Asset Management revenues showed a good overall performance with a 9.8% increase year-on-year. Costs increased on the back of the development of the business and pre-tax income marked an 8.9% reduction but a 1.2% increase excluding some non-recurring items.
To wrap up, good business development for our savings businesses in the second quarter of the year.
EBM: Conditions have been rather mixed for market activities in the second quarter. What are the highlights of your CIB business lines?
Jean-Laurent Bonnafé: Conditions for our CIB businesses were actually less favourable than in the second quarter last year but the division continued to develop its business activity.
CIB’s revenues stood at close to 3 billion euros, down 6.8% compared to the second quarter last year; however, the reduction was limited to -1.6% net of the unfavourable forex effect, mostly on the US dollar, and of the capital gains booked in Corporate Banking in the second quarter 2017.
Looking at the different business lines one at the time, Global Markets’ revenues were down 5% on the back of lacklustre context for FICC activity in Europe versus second quarter last year which was partly offset by good volumes in Equity and Prime Services.
FICC revenues were actually down 17.4% compared to a second quarter 2017 characterised by strong volumes. Client activity on rates remained weak in Europe and the market context was lacklustre for forex and credit. Nevertheless the business confirmed strong positions in bond issuance in the first semester where we ranked number 1 for all bond issues in euros and number 8 for all international bonds.
Equities revenues, on the other hand, showed strong growth of +12.1% on the back of higher client volumes in equity derivatives and the good development of Prime Services. Our recognised expertise in this area was confirmed by the 2018 Extel survey which voted Exane BNP Paribas pan-European number 1 for brokerage and equity research for the second consecutive year.
Turning to Corporate Banking, revenues were down 13.7% but only 1.7% excluding the forex effect and the capital gains booked in the second quarter 2017. This quarter Corporate Banking saw fewer significant transactions in Europe, in particular as some IPOs were postponed, but delivered good performances in the Americas and in the Asia-Pacific region. Transaction banking continued its good development in cash management & trade finance, and the business confirmed its number 1 position for syndicated loans in the EMEA region. Corporate Banking is also actively implementing its digital transformation and in this context has taken a minority stake in TradeIX which has developed a multi-bank trade finance platform leveraging blockchain technology.
Turning to Securities Services, revenues increased by 3.9% on the back of good business drive and the positive effect of new mandates. Securities Services continued to gain significant new mandates and announced a major agreement with DWS covering 240 billion euros of assets in Germany and Luxembourg. On the digital front, the business has already automated 30 processes and with a further 44 under development. It’s also implementing several initiatives based on blockchain technology with other market players to facilitate for example fund distribution and SME securities transactions.
Moving now to total CIB costs, they were 0.9% lower thanks to the cost efficiency measures that have already generated 359 million euros of recurring savings since 2016. Leveraging its digital transformation, CIB has already automated 80 processes out of 200 identified and is pressing on with the implementation of the four End-to-End projects on credit process, forex cash, client on-boarding and fund administration.
Cost of risk remained very low this quarter; however, in the corresponding period of 2017 there had been sizeable write-backs in CIB’s cost of risk.
Overall, CIB generated just under 1 billion euros of pre-tax income, down 26% compared to a very high comparison base in the second quarter 2017 that had benefited from capital gains and significant provision write-backs, but showing a strong rebound compared to previous quarters. This translates in a pre-tax Return on Notional Equity standing at 17.7% for CIB in the first half of the year.
EBM: On the whole, how would you qualify the Group’s performance in this second quarter of the year?
Jean-Laurent Bonnafé: The Group delivered solid results in the second quarter with a net income of
2.4 billion euros.
Revenues progressed in the context of economic growth in Europe, driven in particular by the specialised businesses such as Personal Finance, Insurance or Real Estate, and despite the adverse forex effect and a less favourable market backdrop than in the second quarter of last year.
The Group continues to actively implement its digital transformation plan and roll-out new customer experiences.
With a Return on Tangible Equity of 11.2%, it confirmed its income generation capacity and good profitability.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
