2Q 2019 results
Transcript
EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks, reports 2019 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?
In the second quarter, business activity progressed in the three operating divisions with loans up 4.7% year-on-year.
Group revenues increased slightly year-on-year. They were up 2.5% in the operating divisions on the back of an increase in IFS and CIB and a slight reduction in Domestic Markets.
Group costs were almost stable net of some transformation and restructuring costs. For operating divisions they were up 1.8% with a decrease in Domestic Markets and a rise in IFS and CIB on the back of business growth.
Overall, the operating divisions delivered positive jaws thanks to the continued implementation of the cost saving measures in line with the 2020 plan.
Group cost of risk remained low at 30 basis points thanks to strong discipline at origination, low interest rates and the continued decrease of the cost of risk in Italy.
The Group’s net result stood at close to 2.5 billion euros, up 3.1% on the same quarter last year.
Looking at the first half of the year, the Group’s net result reached 4.4 billion euros delivering a positive jaws effect. Over the same period, the annualised Return on Tangible Equity stood at 11%.
The Common Equity Tier 1 ratio marked a 20 basis point increase to 11.9% on the back of our organic capital generation as well as the positive impact of the deconsolidation of SBI Life.
The Group’s book value per share stood at 75.7 euros after the 3.02 euros dividend per share paid in June, marking a 4.9% annual growth rate since 2008 and confirming the recurrent value creation through the cycle.
To sum up, a good performance for the Group this quarter and in the first half with a meaningful increase in the capital ratio.
EBM: You’ve indicated that each of your operating divisions should show positive operating jaws from this year. How are you progressing with the implementation of your transformation plan?
We’re actively implementing our transformation plan across the Group and we have achieved to date 1.5 billion euros of recurring cost savings of which 200 million euros in Q2 alone. As planned these cost savings will be ramping up to 1.8 billion euros this year and will reach 3.3 billion euros by year-end 2020.
Hence, we confirm our target to generate positive jaws in each of our operating divisions from this year.
EBM: Interest rates in the Eurozone have further decreased in recent months. How have your Domestic Markets businesses fared in this environment? What progress are you making in terms of cost reduction?
In the second quarter Domestic Markets showed increased business activity with good loan growth in the retail networks as well as in the specialised businesses combined with higher deposits in all geographies and net inflows of 2.2 billion euros in Private Banking.
Domestic Markets has continued to improve its digital banking services as acknowledged for instance by the specialised agency D-Rating in France which ranked French Retail Banking as number one among retail banks for its digital offer with sharply improved rankings for both Hello bank! and Nickel. Besides, mobile usages have significantly accelerated with over 4 million active mobile users in the networks and a 28% year-on-year increase in connections.
In terms of P&L, revenues were just slightly lower at a little over 3.9 billion euros on the back of the low rate environment which was partly offset by the increased business activity and the good drive of the specialised businesses.
Operating costs were down 0.5% year-on-year with a significant decrease in the three networks and generating a positive jaws effect. The progress we’re making on the cost front results from the ongoing implementation of the digital transformation as well as new operational models, illustrated for example by the adaptation of the branch network which we have already reduced in the three networks by 333 since the launch of the 2020 plan.
Cost of risk remained low with a continued decrease at BNL and pre-tax income was only a tad lower at 1.1 billion euros.
To sum up, Domestic Markets showed continued good business drive and delivered positive operating jaws in a context of low interest rates.
EBM: Looking at International Financial Services, what are the main highlights of your different business lines?
IFS confirmed good business growth in the second quarter with loans up 5.6% on a like-for-like basis and net asset inflows of 7.3 billion euros in our savings businesses.
IFS businesses have continued to implement their digital transformation with the extensive roll-out of the e-signature for contracts and the development of new self-care features alongside targeted robotics and artificial intelligence developments.
Revenues were up 3.4% at 4.3 billion euros and 1.2% on a like-for-like basis. Given good cost containment, operating jaws were positive on a comparable basis. This led to a pre-tax income of 1.4 billion euros, marginally down year-on-year but stable on a comparable basis.
Let me now zoom quickly on the main components of IFS:
Starting with Personal Finance, it continued to show good business drive with revenues up over 4%, costs evolving at essentially the same pace with the business confirming its target of positive jaws for the full year and a pre-tax income slightly up on last year.
Switching to Europe-Med, it showed loan growth on a like-for-like basis with revenues up in all regions while costs were down thanks to cost saving measures and generating largely positive jaws. Cost of risk was higher compared to an especially low base in the second quarter 2018, mostly on the back of an increase in Turkey. Pre-tax income was up over 9% but slightly down at historical scope & exchange rates due to the depreciation of the Turkish lira.
Turning to BancWest, on a like-for-like basis it showed moderate loan growth compared to last year. Revenues were down due to lower interest income and costs were just a tad higher reflecting good overall control as BancWest is continuing to rightsize its headcount. On the whole, its pre-tax income was down year on year.
Lastly, our savings businesses saw assets under management rise to 1 trillion 89 billion euros at the end of June.
Our Insurance business continued to show good business development. It continues to grow its international presence through partnerships as illustrated by the recent signing of a long-term partnership with Scotiabank in Latin America.
Revenues rose by 6% with costs progressing at a slightly lower pace and pre-tax income marking a 4.6% increase year on year.
Turning to Wealth & Asset Management, revenues were down 4.7% with Wealth Management and Asset Management’s revenues marking an overall slight increase but Real Estate showing a drop due to a very high base in the second quarter of last year. Costs decreased by 1.2% thanks to the effect of cost saving measures and pre-tax income was down year on year.
To wrap up, IFS showed good business growth and confirmed its significant income contribution in the second quarter of the year.
EBM: Following on from your good performance in the first quarter, how has your CIB business performed in Q2? Have you continued to grow in selected business areas?
CIB has continued to implement its transformation plan along its three main axes, namely the continued streamlining of activities, the intensification of the industrialization and the selective growth on targeted clients, the latter being illustrated by our preliminary agreement with Deutsche Bank to provide service continuity to their prime brokerage & electronic execution with the transfer of the necessary technology & staff.
In Q2 CIB continued to strengthen its leading positions in Europe as evidenced by its number 1 position for all bonds in Euros, syndicated loans and high yield issues. Besides, Exane confirmed its top spot in Europe in equity research & brokerage.
CIB’s revenues stood at 3.1 billion euros in the second quarter, marking a 4% year-on-year increase.
Taking the business lines one at the time, Global Markets’ revenues were down just 1.2% net of the transfer of the new Capital Markets platform.
FICC revenues were up 11.7% with a good performance in forex, credit and primary issues while Equities revenues were down 14.3% compared to a high base in the second quarter 2018 but with good client activity in equity derivatives.
Looking at Corporate Banking, revenues increased by 7.3% excluding the Capital Markets platform, with strong business development in Europe and continued growth of cash management & trade finance.
Finally, revenues were up 12% in Securities Services.
Turning to total CIB costs, they were up just 1.3% leading to a 2.7 point positive jaws effect. Costs benefitted from the cost saving measures as well as from the implementation of end-to-end digitalised processes and the automation of operations.
Cost of risk remained low and only marginally higher year-on-year. As a result, CIB generated close to 1.1 billion euros of pre-tax income, marking a 6.2% year-on-year increase.
In a nutshell, CIB delivered a good performance with revenue growth and a positive jaws effect.
EBM: Corporate Social Responsibility is an important component of the Group’s 2020 plan. What are the main axes of your engagement policy?
First of all, let me say that we’re very proud to see our efforts of promoting sustainable finance recognized globally, having just received the Euromoney award for “World’s Best Bank for Corporate Responsibility”!
Our 2020 ambition is focused on making a positive impact on society acting on three main levers:
First, we’re actively engaged in supporting sectors considered as directly contributing to the 17 UN Sustainable Development Goals.
Secondly, we want to continue to play a major role in the transition to a low carbon economy by for example helping clients implement new energy models.
And thirdly, we want to continue to develop a positive impact culture through tangible initiatives.
Hence, our CSR approach allows BNP Paribas to take part in building a sustainable future, while contributing to the Group’s performance and continued stability.
EBM : Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!