EuroBusiness Media (EBM): BNP Paribas, one of Europe’s leading banks, reports 2014 second quarter results. Jean-Laurent Bonnafé welcome, you are the CEO of BNP Paribas. What are your comments on the Group's second quarter results?
Jean-Laurent Bonnafé: Our second quarter results include the impact of the comprehensive settlement with US authorities that we announced at the end of June. The negative impact on the Q2 results totals 5.95 billion euros.
If we exclude this impact and some other non-recurrent items and look at the underlying performance, net results for the Group stood at a very good 1.9 billion euros in the second quarter.
Q2 revenues of the operating divisions were 4% higher at constant scope and exchange rates. This was on the back of essentially stable Retail revenues, increasing Investment Solutions revenues and a very good performance in CIB driven by the strong performance of Advisory & Capital Markets.
Operating expenses increased at a lesser pace than revenues as depicted by the positive jaws in our 3 main business lines excluding one-offs. In Q2 we continued to implement Simple & Efficient across the Group. This plan is well on track as it has already delivered 1.2 billion euros of recurrent cost savings on a cumulative basis.
As a result, gross operating income increased by 6% excluding one-offs while cost of risk stood at 53 basis points, decreasing this quarter and confirming the range-bound stability since the beginning of 2013.
Our Basel 3 fully loaded core Tier 1 ratio stands at 10%.
At the same time, BNP Paribas continued to grow its deposit base, as shown by Retail Banking deposits which increased by 4.5% compared to the previous year.
EBM: Given the agreement you’ve reached with US authorities, do you still confirm that your underlying operating trends will remain on track with regards to your 2016 business plan targets?
Jean-Laurent Bonnafé: Yes, and I also want to reiterate that North America remains a strategic market for the Group where we plan to further develop our Retail, Investment Solutions and CIB franchise over the coming years.
EBM: What have been the reactions of your clients and counterparts on the back of that US settlement?
Jean-Laurent Bonnafé: The resolution of this matter was a priority for us and having settled it represents an important step forward for BNP Paribas. Following the signing of the agreement, we have reached out to our clients to inform them and answer their questions. I have been personally involved in this as well as all the top management of the bank.
Basically our clients have been supportive and have seen that we’ve taken responsibility for the past misconduct, turning the bank to the future. Proof of this support was illustrated by several commercial successes we had in the quarter such as the pan-European mandate that our Securities Services was awarded by the Generali Group for the global custody and administration of its assets totaling 180 billion euros.
EBM: How would you quantify the costs related to the remediation plan across the Group?
Jean-Laurent Bonnafé: In our Q2 accounts we have booked a one-off amount of 200 million euros which will cover the implementation of the remediation plan that we have announced, in particular the new Compliance department called Group Financial Security US which will be headquartered in New York and the process and control of all US dollar flows via our New York branch.
To avoid any repeat of this situation, we are also announcing a comprehensive plan to strengthen our internal control and procedures beyond this remediation plan. The organization of the supervisory and control functions will be aligned to the model of the Risk Department and General Inspection. Compliance and Legal will be hence vertically integrated in order to ensure their independence and enhance their effectiveness.
We shall set up a Group Supervision & Control Committee, which I shall chair personally, to oversee the consistency and coordination of supervisory and control actions. We shall also set up a Group Conduct Committee to oversee our policy regarding specific sectors of activity and sensitive countries.
Resources allocated to compliance and control shall increase further. I remind you that since 2009 staffing of our Group Compliance has been boosted by over 40% to reach almost 1,600 people at year-end 2013.
EBM: Regarding your domestic Retail activities, the macroeconomic environment is not improving that much across the euro zone, which continued to see weak GDP growth. How has this impacted your volumes and cost of risk in the second quarter?
Jean-Laurent Bonnafé: Domestic Markets showed a good overall performance in Q2. The low growth environment in the euro zone continued to weigh on lending activity, which remained globally soft.
Deposit gathering on the other hand remained dynamic in France, Belgium and at Cortal Consors in Germany. Total deposits reached 296 billion euros, up 3.8% on the previous year.
We continued to develop our Cash management where we achieved significant success in the wake of the transition to the SEPA European standard.
Likewise, we have maintained innovation momentum in our Digital offer through the continued development of Hello bank!, e-Wallets and mobile payments collection.
Revenues stood at 3.9 billion euros, up 0.7% on the back of a good performance of private banking and Arval despite the continuing impact of the low interest rate environment.
Operating costs were down 0.6%, which meant that once again we managed to improve the operating efficiency in France, Italy and Belgium, in line with our 2014-2016 development plan.
Gross operating income increased by 3% while pre-tax income stood at 0.9 billion euros, slightly below the previous year due to the rise in the cost of risk in Italy. Cost of risk remained low in France while it was particularly low in Belgium this quarter.
So, as you can see, a good overall performance for Domestic Markets this quarter.
EBM: In international Retail banking you have a well-diversified footprint. Could you update us on the second quarter evolution in your main geographies?
Jean-Laurent Bonnafé: When considering the year-on-year evolution of our International Retail Banking in Q2 it must be noted that foreign exchange variations play a significant role. Hence, to get an appropriate idea of the performance, we should look at the results at constant scope & exchange rates.
Starting with our Europe-Med division, volume growth remained sustained in Q2. In fact both loans and deposits increased by over 11% on the previous year. In our Europe-Med geographies we continued to develop our cash management capabilities as well as our private banking business, which saw Assets under Management increase particularly in Turkey where they reached 3.5 billion euros.
Revenues were up 2.7% despite the impact of regulatory changes in Algeria and Turkey, which came into effect in Q3 2013. Net of this effect, revenues progressed by close to 10% with revenue growth in all the different geographies.
Operating costs were 6.7% higher mostly on the back of the continued strengthening of TEB’s commercial set up in Turkey.
Europe-Med’s cost of risk was lower this quarter and pre-tax income came to 119 million euros, slightly lower than a year earlier.
Moving on to BancWest in the US, volume growth remained strong reflecting a good marketing drive. Private banking also continued to develop well, as confirmed by the continuing increase in Assets under Management, which have now reached close to 8 billion dollars.
Revenues improved by 1.2% in Q2 thanks to higher volumes and despite the persistence of an unfavourable level of interest rates.
Operating costs were penalized by higher regulatory expenses, in particular related to CCAR. The impact of the strengthening of the commercial set up was partly offset by savings deriving from the branch network rationalization.
Overall, BancWest’s pre-tax income was 6% lower in Q2 at 178 million euros.
EBM: Personal Finance, your consumer finance arm, remains a dynamic area of business. Could you update us on its second quarter performance?
Jean-Laurent Bonnafé: As you say, Personal Finance remained very dynamic this quarter. Overall, total loan outstandings increased by 3.6% in Q2 on a comparable basis. Let me mention two significant recent developments that are worth highlighting.
The first was the purchase of the remaining 50% of Laser from Galeries Lafayette, which effectively makes Personal Finance the number 1 specialized player in France. The second was the renewal of the strategic partnership with Commerzbank in Germany until 2020.
Revenues were slightly higher at constant scope & exchange rates and they were actually up 1.4% if we exclude some one-offs.
The growth in the level of activity was in line with the plan and outstandings increased in the whole of the geographies, in particular in Germany, Belgium and Central Europe.
Operating expenses were 1.5% higher on the back of a growing level of activity.
Pre-tax income reached 263 million euros marking an improvement of over 18% at constant scope & exchange rates.
Hence, in Q2 Personal Finance confirmed its dynamism with a significant improvement of its results.
EBM: What is your main takeaway from the second quarter in Corporate and Investment Banking? Do you intend to modify your expansion plans in the US and Asia?
Jean-Laurent Bonnafé: Our CIB posted a good overall performance this quarter.
If we start with Capital Markets activities, revenues showed a strong 22.4% increase, excluding the impact from the first-time introduction of FVA.
Fixed Income saw a strong progress of its revenues, which were 22% higher excluding the FVA introduction impact. Interest rates and credit showed good levels of activity and forex was also up this quarter with a good performance in Asia.
Primary activity was also quite dynamic this quarter and we confirmed our n° 1 position on Corporate bond issues in Euro.
Looking at Equity & Advisory, this side of the business had another strong quarter with revenues increasing by close to 23% compared to the previous year. We saw good client demand for equity derivatives, both on flow and on structured products.
In Q2 we also witnessed a rise in M&A and equity capital market activities, and we confirmed our leading position on equity-linked in the EMEA region.
In terms of Corporate Banking, loans outstanding remained globally stable compared to the previous quarter. In the first six months of the year we retained our n° 1 spot for syndicated loans in Europe while continuing to develop our international cash management. This also contributed to a 16% increase of our deposit base, which stood at 73 billion euros in Q2.
As a result of this, revenues increased by close to 3%. Strong growth in Asia continued in Q2. Revenues in the Americas also improved while activity in Europe remained soft given the weak economic environment and the slowdown in the Energy & Commodity sector.
Regarding your question on our expansion plans, as I clarified a moment ago, we remain committed to our development in North America.
In Asia-Pacific the implementation of our development plan is generating significant revenue growth as I’ve just mentioned.
So, no change there.
EBM: What are the highlights of the second quarter performance of your Investment Solutions businesses?
Jean-Laurent Bonnafé: Investment Solutions’ assets under management increased to 883 billion at the end of June mostly due to a significant performance effect.
Net inflows in the first half were mostly driven by the Insurance business and to a lesser extent by Wealth Management.
In Q2 Securities Services achieved significant commercial success with, for example, the Generali mandate I mentioned before and the acquisition of the depositary activity of Banco Popular in Spain which will bring an additional 13 billion of assets.
At constant scope & exchange rates, Q2 revenues were 5% higher with a positive contribution from all its main business lines, in particular from Insurance and Securities Services.
Operating costs were up due to the higher levels of activity in Insurance and Securities Services, and the ongoing implementation of the development plans in various business areas and geographies.
Pre-tax income topped 600 million euros this quarter marking a 9.2% increase on the previous year.
As a wrap up, you can see that the second quarter saw a good overall performance of our Investment Solutions, driven in particular by the Insurance and Securities Services businesses.
EBM: And finally, on the back of all this, could you update us on where you stand with regard to your balance sheet?
Jean-Laurent Bonnafé: I have already mentioned that at the end of June our Basel 3 fully loaded core Tier 1 ratio stood at 10%, which is in line with our business plan indications.
Also in terms of Leverage ratio we stood at 3.5%, which is well above the minimum threshold.
And we maintained a considerable level of immediately available liquidity reserves, which totalled 244 billion euros at the end of June.
In addition we have already completed our medium/long-term programme for this year having raised over 30 billion euros.
To conclude, BNP Paribas’ balance sheet is rock-solid and allows the Group to finance its development and to accompany its clients in their projects.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
