EuroBusiness Media (EBM): BNP Paribas, one of Europe’s largest banks, reports 2019 third 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 third quarter results?
In the third quarter, business activity progressed in the three operating divisions with loans up 5.5% year-on-year.
Group revenues increased by 5.3% year-on-year and by 4% on a like-for-like basis, with each of the 3 operating divisions delivering revenue growth.
Group costs were up 2.0% and just 0.4% on a like-for-like basis.
The Group delivered positive jaws and this, in each of the three operating divisions. This was achieved on the back of the continued implementation of the cost saving measures in line with the 2020 plan.
Group cost of risk was low, standing at 41 basis points over outstandings.
As a result, Group operating income was up 10% on the same quarter last year.
The Group’s net result for the third quarter stood at 1.9 billion euros, down 8.8% but up 3.4% excluding exceptional items, as the Group had recorded a capital gain on the sale of 30.3% of First Hawaiian Bank in the same quarter last year.
Looking at the first nine months of the year, the Group’s net result reached 6.3 billion euros, up 3.9% year-on-year. Over the same period, the annualised Return on Tangible Equity stood at 10.3%.
The Common Equity Tier 1 ratio marked a 10 basis point increase, reaching 12.0% on the back of our organic capital generation.
The Group’s book value per share clocked in at 78.0 euros, marking a 5.1% 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 nine months reflecting revenue growth and positive jaws.
EBM: You are coming to the end of the Group’s transformation plan next year. What are the main achievements with respect to cost savings to date and to be expected in 2020?
To date, we have achieved 1.7 billion euros of recurring cost savings of which 166 million euros in Q3 alone. As planned these cost savings will reach 3.3 billion euros by year-end 2020.
Besides, one-off transformation costs are in line with targets and are expected to reach 0.7 billion in 2019. As planned, there will be no transformation costs in 2020.
Hence, we confirm our target to generate positive jaws this year and next year.
EBM: With respect to cost of risk, what can you tell us regarding its evolution? What are the drivers behind this?
Group cost of risk remained low at 41 basis points thanks to strong discipline at origination, low interest rates and the continued decrease of the cost of risk in Italy.
It was low in each of the 3 operating divisions.
The increase year-on-year is mainly due to significant provision write-backs at CIB in the third quarter of last year.
EBM: With interest rates in the Eurozone having further decreased in recent months, how have your Domestic Markets businesses fared in this environment?
In the third quarter, Domestic Markets generated increased business activity with loan growth in the retail networks as well as in the specialised businesses. Net inflows stood at 1.6 billion euros in Private Banking.
Domestic Markets has continued to expand its footprint in digital banking services as evidenced by the increase in mobile usages with over 78 million connections to mobile apps in this quarter alone, up 35% year-on-year. Besides, Domestic Markets has simplified and digitalised its mortgage loan application process in Belgium, France and Italy.
In terms of P&L, revenues were up 0.5% at 3.9 billion euros on the back of increased activity and growth in specialised businesses which were partly offset by the impact of low interest rates.
Operating costs were up just 0.1% year-on-year, thus generating a positive jaws effect. This was achieved thanks to the ongoing implementation of the digital transformation as well as new operational models, including the adaptation of the branch network which we have already reduced in the three networks by 356 since the launch of the 2020 plan.
Cost of risk remained low with a continued decrease at BNL.
Pre-tax income for this quarter was up 2.0% year-on-year at 975 million euros.
To wrap up, Domestic Markets showed continued business drive and delivered positive operating jaws as well as a rise in pre-tax income 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 sustained business growth in the third quarter with loans up 9.3% and a 4.1% rise year-on-year in assets under management.
IFS businesses have continued to implement their digital transformation with the continued roll-out of the e-signature at Personal Finance with over 1.3 million contracts signed electronically and 28 million monthly statements made available electronically to customers. Besides, new self care features contribute to the continued development of mobile usages with over 70% of Wealth Management customers being registered users of myWealth, the new online Private Banking tool, and 62 million self care transactions undertaken by customers at Personal Finance.
Revenues were up 5.1% at 4.2 billion euros and 1.9% on a like-for-like basis. Costs were up 4.0% and just 0.4% on a comparable basis, thus generating positive operating jaws. This led to a pre-tax income of 1.3 billion euros, up 6.7% year-on-year and 5.7% on a like-for-like basis.
Let me now zoom quickly on the main components of IFS:
Starting with Personal Finance, it continued to show business growth with loans up 8.0%, revenues up 4.1%, and costs evolving at a slightly lower pace, thus generating positive operating jaws and a pre-tax income up 2.4% year-on-year.
Turning to Europe-Med, loans were slightly down, with a decrease in Turkey. On a like-for-like basis, revenues were up 1.5% thanks to a rise in margins and fees and costs up just 0.2%, thus generating positive jaws. Cost of risk was down 9.3% and pre-tax income up 15.5% on a comparable basis.
Switching to BancWest, on a like-for-like basis it showed moderate loan growth compared to last year. Revenues were slightly down due to lower interest income in a less favourable interest rate context. Costs were down 4.2% on the back of headcount rightsizing and cost savings initiatives, thus generating positive jaws and a pre-tax income up 7.4% on a like-for-like basis.
Lastly, our savings businesses saw assets under management rise to over 1.1 trillion euros at the end of September.
Our Insurance business continued to show growth in business, with revenues up 2.7% year-on-year, costs progressing as a result of the underlying business development and pre-tax income slightly up on last year.
Turning to Wealth & Asset Management, revenues were up 1.5% driven by Wealth Management and Real Estate Services. Costs decreased by 0.8% thanks to the effect of cost saving measures and pre-tax income was up 18.3% year-on-year.
To sum up, IFS showed continued business growth and rise in income this quarter.
EBM: Following on from your good performance in the first two quarters, how has your CIB business performed in Q3? Have you continued to grow in selected business areas and to optimize your portfolio of activities?
CIB has continued to implement its transformation plan.
With the intensification of its industrialization, it has achieved 62 million euros of additional recurring cost savings this quarter.
It continued its selective growth on targeted clients, with the signing in September of the agreement with Deutsche Bank to provide service continuity to their prime brokerage & electronic execution with the transfer of the necessary technology & staff.
Besides, CIB continued to streamline its activities, which is illustrated by the recent signing of an agreement with Allfunds, a leading wealthtech platform in fund distribution services, whereby CIB will contribute fund distribution businesses to Allfunds in exchange for a 22.5% strategic stake.
In Q3 CIB continued to strengthen its leading positions with clients in Europe as evidenced by its number 1 ranking for all bonds in Euros, syndicated loans and trade finance.
CIB’s revenues came in at 2.9 billion euros in the third quarter, marking a 12.0% year-on-year increase.
Taking the business lines one at the time, Global Markets’ revenues were up 17.2% excluding the effect of the creation of the new Capital Markets platform with Corporate Banking.
FICC revenues were up 38.7% compared to a rather low third quarter last year, on the back of a sharp rise in primary markets and credit as well as a rebound in forex and emerging markets. Equities revenues were down 15.0% in a lacklustre market on flows partly offset by the performance in structured products as well as a slight rise in Prime Services.
Looking at Corporate Banking, revenues increased by 8.7% excluding the effect of the creation of Capital Markets platform with Global Markets, thanks to an increase in the three regions with in particular a strong business development in Europe.
Finally, revenues were up 6.4% year-on-year in Securities Services on the back of increased volumes.
Turning to total CIB costs, they were up 4.8% leading to a 7.2 point positive operating jaws effect. Costs continued to benefit 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 CIB generated a pre-tax income up 13.5% year-on-year.
In a nutshell, CIB delivered a strong performance this quarter, with revenue growth, a positive jaws effect and a rise in pre-tax income.
EuroBusiness Media (EBM): Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
