EuroBusiness Media (EBM): BNP Paribas, one of Europe’s leading banks, reports 2014 third quarter results. Jean-Laurent Bonnafé, welcome. You are the CEO of BNP Paribas. What are your comments on your third quarter results?
Jean-Laurent Bonnafé: In the third quarter, the Group’s net result stood at 1.5 billion euros with a 10.6% improvement compared to last year. If we exclude the one-off items of the quarter, the net result topped 1.7 billion euros.
In Q3 we booked two significant bolt-on acquisitions, namely LaSer in France and BGZ in Poland.
Revenues of the operating divisions on a like for like basis were 2.6% higher, thanks to good revenue drive in all the divisions. The main drivers were International Retail, Fixed Income and the specialized businesses - such as Securities Services, Insurance and Arval.
Operating expenses of the operating divisions continued to benefit from the ongoing implementation of our Simple & Efficient plan across the Group while at the same time including costs related to our investment plans.
As a result, the group’s gross operating income increased by 4.2% while cost of risk was lower this quarter, standing at 47 basis points.
Overall, I would sum up the performance as very good thanks to the diversity of our businesses and geographies.
Turning to the balance sheet, the Asset Quality Review by the ECB confirmed the very sound quality of our assets and we closed the quarter with a fully loaded Basel 3 core Tier 1 ratio of 10.1%.
EBM: Retail banking in your Domestic Markets is facing lacklustre environments in France and Italy while in Belgium it’s performing well. What’s your update on these different markets?
Jean-Laurent Bonnafé: Domestic Markets showed a good resilience in Q3. While loan outstandings were still 0.8% lower in France, corporate loans were up slightly. Outstandings were down 1.8% in Italy but increased 1.5% in Belgium and showed good growth in our specialized businesses, especially Arval. As a whole, customer loans tended towards stabilization.
Deposit gathering remained dynamic in France, Belgium and at Cortal Consors in Germany. Total deposits for Domestic Markets stood at 296 billion euros, marking a 2.8% increase on the previous year.
The continued development of our Cash management capabilities was reflected in the recent Euromoney survey which positioned BNP Paribas as leader in its three main markets, namely France, Belgium and Italy.
The Retail network transformation that we announced earlier this year is proceeding according to plan, focusing on branch format differentiation and introducing new relational models.
Domestic Markets revenues stood at 3.9 billion euros, up nearly 1% with a strong performance of Arval and Leasing Solutions. On the other hand, the prolonged environment of low interest rates continued to weigh on revenues.
Operating costs were almost stable meaning that overall we achieved a positive jaws effect which allowed us to continue to improve operating efficiency.
Gross operating income increased by 2.2% while pre-tax income stood at 0.9 billion euros, slightly below last year due to the still high cost of risk in Italy.
So, you can see that we continue to improve operating efficiency while concurrently innovating in our Retail networks.
EBM: How have your international retail operations performed this quarter? What’s you ambition in Poland given the critical size you’ve now attained through the acquisition of BGZ?
Jean-Laurent Bonnafé: The significant event of the quarter in our international retail was the completion of the acquisition of BGZ in Poland. This acquisition will give us the necessary critical size to develop our Retail banking in a country with attractive GDP growth prospects and still moderate banking penetration.
Through this deal and leveraging on the specialized Group businesses in the country, BNP Paribas will hence become a reference bank in Poland.
Looking now at the performance of our international retail banking, as you know we prefer to look at results at constant scope & exchange rates.
So, if we start with the Europe-Mediterranean division, volume growth remained sustained in Q3 with double digit growth in both loans and deposits. In both instances TEB performed quite strongly.
On the back of this, revenues increased by over 22% with a positive contribution from most geographies.
Operating costs were 7% higher mostly on the back of the continued strengthening of the commercial set up in Turkey and in Morocco.
Despite a slightly higher cost of risk, Europe-Med’s pre-tax income increased strongly, reaching 147 million euros.
Moving now to BancWest in the US, volume growth remained strong reflecting a good marketing drive. In Private banking, Assets under Management continued to expand at a significant pace reaching 8.2 billion dollars at the end of the quarter.
Revenues improved by close to 2% in Q3 thanks to the volume growth and despite the unfavourable level of interest rates. In addition, in Q3 BancWest benefitted from lesser capital gains on securities’ sales than the year before.
Operating costs were penalized by higher regulatory expenses, in particular related to CCAR, while the branch network rationalization progressed in Q3.
Overall, BancWest posted a pre-tax income which exceeded 200 million euros, illustrating its dynamic sales and marketing drive.
EBM: In consumer finance, you’ve been very active in developing the business through strategic partnerships. Could you update us on Personal Finance’s latest results?
Jean-Laurent Bonnafé: In Q3 we completed the acquisition of the remaining 50% of LaSer in France, further strengthening Personal Finance’s position of consumer specialist leader in Europe.
The consolidation of LaSer’s 9.3 billion outstandings in Q3 has significantly increased loan outstandings by about 20% on the previous year. On a comparable basis, the loan outstandings increase stands at 2.5%.
In Q3, we also stepped into the South African market by acquiring RCS, a local point of sale specialist.
As you mentioned, growth through strategic partnerships is an integral part of the strategic plan of Personal Finance and is an ongoing process. In auto financing, for example, we have recently signed several new agreements with automobile makers and this is being reflected in the 2.7% growth in outstanding loans in this sector in Q3.
Revenues benefitted from the full consolidation of LaSer, marking a near 19% increase. At constant scope & exchange rates the increase stood at +2.1% on the back of good volumes of activity in Germany, Belgium and Central Europe.
Operating expenses were 2.4% higher on a like-for-like basis, along the lines of the business development plan.
Given an improvement in the cost of risk, Personal Finance closed the quarter with a pre-tax income of 330 million euros marking an improvement of 12% at constant scope & exchange rates.
Overall, our consumer finance business confirmed its good development with improving results in Q3.
EBM: Can you comment on your CIB performance in the third quarter with particular reference to your diversified geographical footprint?
Jean-Laurent Bonnafé: In Q3 our CIB posted a good overall performance.
Looking first at Capital Markets, revenues were 3% higher with a very low level of our Value at Risk.
Fixed Income had a good quarter, keeping in mind that Q3 of last year represents a low comparison base. Forex performed well as did interest rate activity while credit revenues were more subdued.
Primary activity remained good and we confirmed our n° 1 position on Corporate bond issues in Euro.
Looking at Equity & Advisory, the equity derivatives activity was softer compared to a high comparison base in the previous year and on the back of the slowdown in flow business in most geographies except in Asia.
On the plus side, M&A and equity capital market activities progressed well in the quarter.
In terms of Corporate Banking, loans outstanding topped 110 billion, marking a 2.3% improvement on the previous year. This was driven by growth in Asia and in the Americas. For their part, outstandings in Europe tended to stabilize as compared with the previous quarter. Deposits have grown at a fast pace reaching 78 billion euros, benefitting also from the ongoing development of our international cash management which gained some significant new mandates in Q3. In the first nine months of the year we also confirmed our n° 1 spot for syndicated loans in Europe.
As a result of this, revenues increased by close to 3%. Strong growth in Asia was confirmed in Q3. Revenues in the Americas improved slightly while activity in Europe remained soft mostly on the back of the slowdown in the Energy & Commodity sector.
EBM: Regarding Investment Solutions, what are the main takeaways from third quarter performance of its businesses?
Investment Solutions’ Assets under Management increased to 905 billion at the end of September on the back of net inflows and favourable performance and forex effects.
Net inflows in the quarter were driven by the Wealth Management and Insurance businesses with strong contributions from Italy and Asia.
Securities Services activities continued to develop strongly as depicted by the sizeable increase in its assets under custody as well as the overall number of transactions.
Q3 revenues were 5% higher at constant scope & exchange rates, with good growth in all its main business lines, in particular from Insurance and Securities Services.
Operating costs increased due to the higher levels of activity in Insurance and Securities Services, although both businesses showed positive jaws effects in the quarter. In addition, we continued to implement the development plans in particular in Wealth Management and Asset Management.
Pre-tax income reached 538 million euros this quarter marking a 7.6% increase on the previous year.
In a nutshell, the main takeaways on Investment Solutions this quarter are its good business development and the sustained growth of its profitability.
EBM: Despite the US settlement, you have been quite active in recent months with a string of bolt-on acquisitions. Could you provide some additional colour on the most significant ones?
Jean-Laurent Bonnafé: Yes, it’s true that we’ve been quite active. Besides BGZ in Poland and LaSer in France that I have already talked about, I would also mention the acquisition of DAB Bank that we are currently completing and that should be finalized by year end.
This acquisition will strengthen our foothold in digital banking and online brokerage in Germany and also open the doors to the Austrian market.
DAB will bring some 5 billion euros of additional deposits while nearly doubling our clients in Germany in this segment to 1.4 million.
EBM: BNP Paribas successfully passed the Comprehensive Assessment of the ECB. What have been the AQR implications for the Group?
Jean-Laurent Bonnafé: As you say, BNP Paribas successfully passed the Comprehensive Assessment of the ECB whose results were published last Sunday. This was a very thorough and comprehensive health check of 130 banks in the euro area which has mobilized several departments of the Group for the past 12 months. To give you an indication of the mammoth task undertaken by the ECB, BNP Paribas alone provided 370 million data points and the in-depth review covered over 50% of our balance sheet.
The Comprehensive Assessment comprised the Asset Quality Review and a Stress Test carried out together with the European Banking Authority.
The AQR confirmed the strength of the Group’s balance sheet, the quality of its assets and its stringent risk management.
The Stress Test results showed the Group's capacity to resist to a scenario of major stress, based on very severe assumptions of economic and market evolutions.
The AQR impact on our Common Equity Tier 1 ratio was minor, standing at just 15 basis points, and positions BNP Paribas Group among the best European banks.
At the end of September, the AQR results are integrated in our Common Equity Tier 1 ratio which stands, as I’ve already told you, at 10.1%.
Hence, BNP Paribas confirms once more that it has a rock-solid balance sheet.
EBM: Jean-Laurent Bonnafé, CEO of BNP Paribas, thank you very much!
Jean-Laurent Bonnafé: You’re welcome!
