EuroBusiness Media (EBM): BNP Paribas, one of the Europe's largest banks, reports first quarter 2017. Jean-Laurent Bonnafé welcome! You are the CEO of BNP Paribas. Jean-Laurent Bonnafé welcome! What are the highlights of the Group’s first quarter results?
Jean-Laurent Bonnafé: In the first quarter, BNP Paribas delivered a good operating performance.
Revenues of the operating divisions progressed by 7%. The IFS division marked a significant increase and CIB rebounded strongly from a low base in the first quarter of last year while Domestic Markets was slightly down due to the low rates.
Costs of the operating divisions progressed at a lesser pace than revenues, reflecting in particular increased levels of activity in IFS and CIB. Let me remind that, due to accounting rules, costs include this quarter almost the entire amount of banking contributions and taxes for 2017.
Cost of risk at Group level was at a low level this quarter standing at 32 basis points. This low level of cost of risk resulted from the continued decrease at BNL combined with write-backs in some businesses.
One-off items have a marginally positive impact compared to last year. Hence, the net result marked a 4.4% increase. Excluding one-offs, the net result actually progressed by 13.2%.
This translated into a Return on Equity of 10.4% excluding one-offs and a Return on Tangible Equity of 12.3% always netting out one-offs.
In terms of financial structure, thanks in particular to the sale of an additional 20.6% of First Hawaiian Bank and the sound profitability I have just talked about, the fully loaded Common Equity Tier 1 ratio improved by 15 basis points to stand at 11.6% at the end of March taking into account a 50% dividend pay-out.
Finally, we continued to steadily grow our book value per share which progressed by 1.2 euro per share in the quarter to stand at 75.1 euros per share.
EBM: You mentioned at your Investor Day that the interest rate environment was still challenging in your Eurozone networks. How has Domestic Markets fared in the first quarter?
Jean-Laurent Bonnafé: Domestic Markets showed good business drive in the first quarter with significant loan growth in all the networks and a sizeable increase in deposits in all businesses. Private banking also confirmed a good trend with assets under management increasing by 8% compared to last year. And Hello bank! continued to successfully on-board new clients as its total number of clients further increased to 2.6 million at the end of March.
In terms of P&L, revenues were close to 4 billion euros in the first quarter, slightly lower than last year. As we had anticipated, low interest rates continued to weigh on net interest income but we successfully offset most of the impact through higher volumes of activity and higher commission income in all the networks.
Operating costs were moderately higher on a comparable basis. Given a significant reduction in cost of risk, especially on the back of the continued improvement at BNL in Italy, pre-tax income topped 700 million euros marking a 2.5% improvement on last year.
In conclusion, our domestic retail banking fared quite well, showing good business drive and higher income but of course still reflecting the low interest rate environment.
EBM: Still on Domestic Markets, how does the acquisition of Compte-Nickel fit into your digital transformation plan?
Jean-Laurent Bonnafé: The opportunistic acquisition of Compte-Nickel in France will complete BNP Paribas’ offer related to new banking usages, coherently with our Domestic Markets’ digital plan. With the addition of Compte-Nickel, whose distribution agreement with the “Confederation des buralistes” has been recently extended, our set-up in France will include a comprehensive offer of solutions adapted to our client needs, alongside Hello bank!, the digital offer of our French Retail and the branch network.
Compte-Nickel has proved highly successful since its launch in France just 3 years ago. Over this period, it has attracted over 540,000 clients leveraging its real-time execution capability and the full digitalisation of its processes.
The target is to accelerate client acquisition and attain 2 million accounts by 2020.
EBM: Beyond the Eurozone, how has your International Retail Banking performed?
Jean-Laurent Bonnafé: Starting with Europe-Med, business activity showed good growth in all regions, both in terms of loans and deposits.
Our digital banks in this area confirmed their successful development with Cepteteb in Turkey exceeding 380,000 clients and BGZ Optima in Poland reaching 205,000.
At constant scope & exchange rates, revenues progressed by 6.2% thanks to the good volume growth I mentioned. Costs increased at a lesser pace on the back of the good business development. Overall, given a lower cost of risk due to a write-back this quarter, Europe-Med’s results increased by 28% in the first quarter of the year.
Moving to our US retail banking, BancWest confirmed a strong business drive. Loans increased by 7.7% driven by both individuals and corporate lending while deposits were up 11.4% compared to last year.
At constant scope & exchange rates, revenues were visually lower due to the impact of significant sales of securities and loans in Q1 of last year. Net of this effect, revenues progressed by 5.3% on the back of the good volume growth.
Costs were kept under close control and, on the whole, BancWest’s pre-tax income came out lower than last year but only due to the base effect related to the securities and loans sales. Net of this effect, pre-tax income increased by 16% confirming a good operating performance.
EBM: In Personal Finance you’re evolving your product business mix towards more car loans while expanding partnerships. What are the highlights for the first quarter?
Jean-Laurent Bonnafé: Personal Finance continued its very good business drive in the first quarter 2017 with outstanding loans increasing by over 11% thanks to higher demand in the Eurozone and the positive effect of new partnerships. Consistently with Personal Finance’s 2020 development plan, we signed during the quarter new partnerships in new sectors of activity, such as tourism, and in new countries like Austria.
An important event of the first quarter was the agreement we signed in March with PSA Group to buy General Motors Europe’s car finance business in 11 European countries. The deal is expected to be finalised in the fourth quarter of 2017 and it will bring an additional 9.6 billion euros of loan outstandings to our Personal Finance.
As you can see, we swiftly seized this opportunity to bolster our presence in the car loans business and in one of our targeted countries, that is Germany.
In terms of results, revenues were up 4.5% on the back of volume growth combined with the shift towards products with a better risk profile. Revenue growth was driven in particular by the Italian, Spanish and German markets.
Costs progressed on the back of the increased level of activity.
Cost of risk was at a low level and pre-tax income progressed to 353 million euros, marking a 6% increase on last year.
In conclusion, Personal Finance delivered another strong quarter with dynamic business drive and an increased contribution to the Group’s results.
EBM: Financial markets have been generally quite positive in the first part of the year. How have your savings businesses fared in this context?
Jean-Laurent Bonnafé: The Group’s total assets under management reached 1,042 billion euros thanks to strong asset inflows in all our businesses and a positive performance effect.
Looking at the Insurance business first, it continued to register good net inflows into unit-linked policies in the first quarter. Revenues rebounded strongly bearing in mind the low comparison base of last year. Generally, protection activity progressed well and savings activity in Asia marked a pick-up compared to last year.
Costs were up due to the continued development of the business and, overall, Insurance pre-tax income marked a sizeable 63.8% improvement to stand at 326 million euros in the first quarter 2017.
Turning to Wealth & Asset Management, revenues increased in all business lines. As a reminder, Q1 of last year had seen an unfavourable market backdrop. Costs were well under control, resulting in a significant pre-tax income improvement of close to 30% at 217 million euros.
To wrap up, strong income growth in our Insurance business compared to a low base in Q1 2016 and a good performance in all businesses in our Wealth & Asset Management.
EBM: CIB activity in Europe had been quite subdued in the first quarter of last year. The operating environment seems to have been more favourable this year. What colour can you provide on the performance of your business lines?
Jean-Laurent Bonnafé: In Q1 our Corporate & Institutional Banking division displayed good growth in business activity and a strong rebound in income generation compared to a low base last year when market conditions had been unfavourable.
Revenues topped 3.2 billion euros, marking a strong 20% increase on last year with a good performance from all the three business lines.
Focusing on each business line one at the time and starting with Global Markets, revenues leapt by 33% thanks to a significant pick-up in activity compared to a Q1 last year with very difficult market conditions.
Fixed Income marked a near 32% improvement with a particularly strong performance in rates, good growth on bond issues and credit, and a good contribution from forex and commodities. We confirmed our top ranking on all bond issues in euros and number 9 position for international bond issues.
The business also continued to optimise its resource allocation by disposing of a sub-profitable portfolio representing 2.5 billion euros of risk-weighted assets.
Equities revenues were also significantly higher marking a 35.5% improvement on last year on the back of a strong rise in Prime services and a rebound in derivatives activity.
Turning to Securities Services, revenues progressed by 8.5% on the back of growing outstandings and higher transaction levels.
Finally, Corporate Banking revenues progressed by 6.7% with growth in all regions and a significant improvement in commission income compared to a low base last year. We saw a good start to the year in advisory and sound performances across Europe in areas such as aircraft financing, export and media telecom. Transaction banking also evolved well, with sound growth both in cash management and in trade finance.
Turning to total CIB costs, they progressed on the back of the increased level of activity but showed largely positive jaws thanks to effective cost control deriving from the implementation of cost saving measures.
As a result, gross operating income leapt by 67.3% and, given net write-backs in cost of risk this quarter, pre-tax income surged 93% to stand at 778 million euros.
So, in a nutshell, a strong quarter for our Corporate & Institutional Banking with good business drive and strong revenue growth in all the business lines.
EBM: Finally, you’ve embarked on an ambitious digital transformation plan which implies significant investments. Could you update us on where you stand on this front?
Jean-Laurent Bonnafé: As you know, we are implementing an ambitious programme of new customer experience, digital transformation and savings across the Group that entails total investments for 3 billion euros by 2020.
The launch of the plan has started in line with the defined timetable and the programmes are being implemented gradually. In Q1 we incurred just 90 million euros of transformation costs but these will progressively increase over the coming quarters.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
