Bnp Paribas Ord

Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas Third Quarter 2022 Results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IRO website, invest.bnpparibas.com. During today's presentation, you will be able to ask your question by pressing 01 on your telephone keypad. If you would like to ask a question, please make sure to be in a quiet area to maximize audio quality. I would like now to hand the call over to Lars Marchenil, Group Chief Financial Officer. Please go ahead, sir.

Thank you, Marie. Good afternoon, fine ladies, gentlemen. I trust you're doing well, and welcome to BNP Paribas' third quarter 2022 results presentation. Perusing the presentation, the progress on our plan GTS 2025 and its efficiency stands out. You will see the plan at work. through the solid third quarter results with the bottom line up 10%, accompanied by JAWS at the group level as well as divisions. Moreover, you will see many examples of growth levers, technology rolling out and sustainability stepping up, GTS. On growth in particular, you will see our unique position, BNP Paribas' unique position in accelerating our organic growth via bolt-on acquisitions, enhancing the profitability even further. In the usual way, I'll take you through the first chapters of the result presentation and then hand it over to you for Q&A. So moving on to this core presentation, let's focus on the key messages first, slide three. Indeed, the group results were strong, combining revenue growth, positive jaws, and a prudent risk management. These performances illustrate our unique positioning and competitive edge in Europe based on our client-centric approach, the strength of our leading franchises and scalable platforms, as well as our capacity to sustain growth through a robust business momentum. Looking at group revenues, they were up sharply 8%, stemming from the three divisions with a solid increase by CIB strong growth at CPBS, and a strong rise for investment and protection services. Supporting the growth in activity, costs have increased by 6% and by 2.8% on a like-for-like basis at group level, and this compared to a year ago. Half the increase was due to scope and exchange rate effects. So what you can see is that the group continues to benefit not only from a strong potential for growth, but also from a strong operational performance delivering, what else can I say, strong positive jaws of two points. Underlying group cost of risk stood at 31 basis points over loans outstanding as a testimony to our sound long-term and proactive risk management. All in all, a steep rise in the group's net income, clocking in at 2.8 billion euros, up 10%. Turning to the group CET1 ratio, standing at 12.1% in the third quarter, with an ROTE at 11.4%, as an illustration of our reinforced profitability. So, in a nutshell, very good and clean results again this quarter, demonstrating our unique setup and delivery as articulated in the GTS 2025 plan. And, of course, disciplined growth seen through our positive draws. If we now switch to, or slide to, whatever it is, slide four, you can see that BNP Paribas model has delivered, since the third quarter of 2018, a sustained growth in net income averaging 4%, maintaining a well-balanced contribution from our three divisions. On the bottom left chart on operating expenses, we have evidence the impact of Forex and scope effects, which explain a significant part of the increase quarter on quarter. The remaining part represents a 2.7% increase in operating expenses resulting from organic growth as inflation is basically counterbalanced by our recurring savings which have materialized once again in the third quarter. To illustrate our ability to deliver positive jobs, I remind you the key drivers which structurally sustain them. First, a strong potential to grow at marginal cost on the bank of our leading platforms. Second, a constant focus on operational efficiency and the commitment to deliver net cost savings evenly throughout the plan. And this leads to a group's JAWS effect standing at two points with positive JAWS in each division. If we now go to slide five, where you can see that our model is providing a solid base for growth fueled by additional recurring income stemming from strategic developments finalized in 2022, and this basically for each division. These investments have been conducted with three main objectives, which are at the core of our strategy and sustained by our diversified and integrated model. First, acceleration in organic growth, leveraging our leading platforms. investments in new technologies and innovative business models and third bolt-on acquisitions in value-added businesses in line with the strategy of these businesses so no wild goose chase but a very focused and stepping stone approach for example in 2022 we broadened our offer and invested in new technologies be it at cib with a strengthening of the equities franchise, or within CPBS in the payments and e-commerce areas with Flora, and more recently, for actually both divisions, Cantox, an automated platform for currency risk management for corporates. Furthermore, we accelerated growth with targeted acquisitions and partnerships for asset management, Arval, and personal finance. And last, we adapted our operating model to deliver even more efficiency and achieve a better quality of service, as illustrated by our partnership with BPOS Bank in Belgium, as a complementary and differentiated distribution channel. All these acquisitions and partnerships should provide more than €1.4 billion in revenues as soon as 2022, and around €2 billion on a full-year basis with their ramp-up. This accelerated growth is allowed by our solid capital position. It has led to an impact on our CET1 to the tune of 20 basis points, with an estimated related return already up to 10% in 2022 and forecasted at 17% in 2025. This process of this redeployment will continue to be stepped up, and is to be supported by the capital to be released with the sale of Bank of the West, a solid bedrock upon which the group will continue to accelerate its growth, aside an extraordinary distribution by way of share buyback to neutralize the expected dilution for a global amount of around 4 billion euros. Furthermore, this growth is also accompanied by the positive effect related to the interest rates hikes, which have materialized in the past quarters, and were not taken into account when we made and announced the plan GTS 2025. On this effect of the rates and the associated with management actions, they should generate a positive impact on the net interest income in 2025 at the level above 2 billion, over and above which was provided in the target in February. Let me reiterate that growth will continue to be disciplined with a clear and firm focus on positive jobs as demonstrated again this year. So with this, if we advance to slide six, where we see that thanks to our long-term prudent and proactive risk management policy, we have built a portfolio of a high quality in terms of risk profile. As you know, This is a real and proven differentiating stance, as illustrated by our cost of risk on gross operating income, so revenues minus cost, which is one of the lowest amongst European peers. In addition, we have continuously improved our risk profile since 2012, be it by adapting our product mix or exiting gradually certain geographies, businesses or sectors. It is the case, for instance, in Italy, where cost of risk has significantly decreased from around 120 basis points back in 2016 to around 60 basis points this quarter as a result of a repositioning in our client portfolios. And this is also the case in personal finance, where the greater focus on, in particular, auto loans with an average cost of risk of around 45 basis points structurally drives the decrease of costs of risk. Not to mention our prudent provisioning policy with an additional forward-looking 710 million euros provisioning in the second and third quarter of this year pertaining to the indirect effects of the invasion of Ukraine as well as higher inflation and interest rates. Finally, our coverage rate of doubtful debt clocks in high at 73% thanks to this prudent approach and high level of collateralization. So in a nutshell, our stance makes us well prepared for potentially tougher times and comforts our guidance of 40 basis points every year. If we now turn to slide eight, you can see the exceptional items for the third quarter and they are basically negative on the whole. Two thirds is due to the impact of the specific law passed on credit holidays in Poland for an immediate negative impact of 204 million euros that we registered in the cost of risk. The remaining is linked to the restructuring costs as well as IT reinforcement. If with this, you swipe to slide nine, you can see the strong performance of the group in the third quarter accompanied by a strong return on tangible equity. The financial performance has improved year over year on all items, all the way down to the bottom line, leading to a net income up by, what else can I say, a handsome 10% year on year. On track with the plan, the group has delivered a return on tangible equity of 11.4%, with an earnings per share up by 12.8% year on year. So this is a synthesis of the group. And if we now move to the revenues of the operating divisions, which you can see on slide 10, so they grew with a solid 8.3% year-on-year, 5.3% on a like-for-like basis. This charming growth has been achieved on the back of a strong performance from all divisions. We're emphasizing the strength of our model. And as there are three, let's start to the first. CIB revenues grew by a solid 5.9%, 2% on a like-for-like basis, with very good results supported by a buoyant client activity, strong performances in global markets and security services combined with a resilient global banking in a tough market. Second, a strong momentum for CPBS with a 9.6% increase on the back of our commercial and personal banking activities with a strong performance notably in France Luxembourg and outside the Eurozone. Furthermore, this quarter, our specialized businesses had a very strong growth. Last, but not least, of course, in a subdued market environment, IPS delivered a strong increase in revenues at 8.9%, with in particular good performances in insurance and wealth management. If I can now ask you to flick to slide 11, costs. up 5.9% or 2.8% like for like. And this in the operating divisions, as we mentioned, and generating strong positive jaws in these operating divisions of 2.4 points. Costs mainly accompany the strong business growth, combined with on top a significant forex and scope impact as described earlier. It is again a tribute to the high operational efficiency of our leading platforms and ability to grow at marginal cost. Again, if we look at the three divisions, starting with CIB, the division delivered positive jaws at 1.4 points. Costs were stable on a like-for-like basis. For CPBS as well, positive jaws, 2.6 points, thanks to continued cost savings and transformation in the operating model. costs were up 4.5% year-on-year on a like-for-like basis in line with strong growth in activity and scope. Third, IPS, costs were up 4.8% year-on-year, supporting the business as well as targeted investments, generating a very positive JAWS effect of 4.2 points. Staying in the operating divisions and looking at the cost of risk, slide 12. You can see that it stood at the low underlying level of 31 basis points of loans outstanding. And this, excluding the exceptional impact on Poland, slightly lower than in the same quarter last year. So what does this stem from? First of all, low impairment on non-performing loans, so-called stage three provisions. And second, our prudent approach leading to ex-ante provisions, so-called stage one and two, on performing loans, in relation to the side effects of the invasion of Ukraine and higher inflation and interest rates up with a tad shy of 200 million euros this quarter and 710 million euros adding the provisioning in the second quarter. You can see on slide six. Both are again a tribute to the quality of our portfolios and prudent risk approach. Now, moving on to each business one by one, you will see the same cost of risk pattern So low level of cost of risk across the board as we don't see deterioration in credit quality. If we now turn to slide 15, you can see that our common equity T1 ratio stands at 12.1%. The CET1 ratio was down 10 basis points versus a quarter ago, stemming from basically three levers. First of all, a plus 10 basis points organic capital generation on the back of the contribution of the third quarter results. after setting aside 60% for distribution and net of the organic growth of RWAs, plus 10 basis points. Then there is a forex effect of 10 basis points, minus 10 basis points, given the strengthening of the US dollar. And thirdly, there is a minus 10 basis point impact of market prices on OCI, given the fact that both debt and equities were moving in the same way as basically we have seen for most of the banks coming out with results. Looking through the temporary impacts on CET1, you observe that BNP Paribas is in great shape and as such has continued to accelerate our growth by supporting our clients and the economy. Moreover, the benefit from the capital that will be realized by the sale of Bank of the West, I remind you around 7 billion after the neutralization of the expected dilution, is the bedrock upon which the group will continue to accelerate growth while ensuring a solid level of CET1 consistent with the 2025 objective. Our leverage ratios stood improved at 3.9%, increasing by 10 basis points with a trajectory to be accelerated to reach our target at 4.2% through the ramping up of 81. Then to top up the overall view at the group and before going into the businesses, you see that on slide 16, you can see the usual steady growth of our tangible net book value per share, standing at 79.3 euros, up 2.5 euros compared to last year. And also, as you know, the bank is acting as a responsible and sustainable bank, and acting, I mean, it's at the heart of BNP Paribas' company purpose and is a key pillar of our 2025 GTS plan, as demonstrated by the impressive list of actions, commitments, partnerships that you can see on slide 17 and 18. The group is fully engaged around five major priorities, combining levers as per the United Nations goals, sustainable development goals. First, savings, sustainable investments and financings. Secondly, transition to carbon neutrality. Third, natural capital and biodiversity. Fourth, social inclusion. And five, circular economy. Besides, the group has also been recognized for the best net zero progress of the year in EMEA-GAI environmental finance. BNP Paribas has also been distinguished as the only bank with the FNOR Alliance label for its actions on diversity, inclusion, and professional equality. To top it off, I leave you to scan slide 18 on internal control and compliance emphasizing the rigorous and diligent implementation of all the necessary measures to the enforcement of international sanctions. So it is. I would now kindly ask you to advance to the first quarter results by division, starting with slide 21 on CIB, which saw another quarter of very good results thanks to a strong client activity building on its stronger-than-ever to support clients. Indeed, the business activity was solid again this quarter, confirming CIB leading market shares in financing for EMEA as well as in transaction banking. The division is also consolidating its leadership on multi-dealer electronic platforms. So first, in an unfavorable context, a resilient performance of global banking with revenues down 7.9% compared to a high base a year ago, they were impacted this quarter by markdowns on unsold leveraged financing syndication positions, as it was the case in a more marked way for our peers, particularly in the U.S. In this context, revenues held up well, supported by strong gains in trade finance and cash management in all regions, and a particularly high growth for APAC. In a nutshell, a strong resilience for global banking, with further gains in market shares in financing in EMEA. The second part of CIB, supported by a sustained overall client activity, global markets revenues grew strongly at 14.7% thanks to a high demand from our clients in hedging across the board and geographies, and in particular, a very good performance in commodity derivatives rates, Forex, and emerging markets. So basically all letters in FIC if you want. Hence, a very good performance for that FIC with revenues up sharply 25% year-on-year. Moreover, our equity activities also show the good momentum on derivatives, as well as a good contribution from prime services, but a less favorable context for primary and credit activities. In this context, revenues increased by 3.3%. To illustrate the new dimension of our equity business, revenues have more than doubled compared to 2019. And last but not least, You know that digitalization and industrialization are key. Our leadership was again confirmed with our number one positions on multi-dealer electronic platforms across markets. The third part of CIB, security services, achieved again this quarter a very high volume of transactions on the back of a strong business drive. In a challenging environment, assets held up well on the back of the rollout of a major new mandate won in 2021 and 2022. and this sustained by a diversified setup towards buy and sell side, further boosted by the positive impact of the interest rate environment. Revenues increased by a material 10% year-on-year, very strong performance. As this resulted in a more than decent increase in CIB revenues, up 5.9%. Total CIB costs were up 4.5%, driven by mainly exchange rate effects. They were stable on a like-for-like basis and accompanied by a positive Jaws effect of 1.4 points. Gross operating income, so the difference between the two, was up 8% and accompanied by a low cost of risk. Hence, CIB generated 1.4 billion euros of free tax income, up 3%. To wrap up the first division, a very good performance for CIB as a continued illustration of our leadership position served by the new dimension of the platform, structuring our ability to match and serve corporate and institutional client needs while sticking to our prudent approach. So that's the first division. If you now turn to slide 25 to 33, commercial, personal banking, and services. As you can see, CPPS benefited from a sustained business drive. Hence, results were up sharply with very positive results. In the new digital business, first, Nikko continued its development in Europe, as well as the acceleration of accounts opening this quarter in France and Spain, reaching more than 2.9 million accounts open since inception, of which more than 1 million over the last two years. Second, Floa continued to have a good level of production, with 4 million customers at the end of September. Arval confirmed a very good performance, supported by the expansion of the finance fleet, plus 5%, and used car prices remaining high. Outstanding is increasing with a good resilience of the business at leasing solutions. If you now look at the balance sheet, both sides, loans, deposits. Loans were up 8% and deposits grew 7% across all businesses. Moreover, the division continued the transformation in its operating model and investments in new technologies, further reinforcing its ability to serve clients For instance, with the acquisition of a platform of automation of foreign exchange currency risk management for corporates. In terms of P&L, CPBS revenues were up by a vivid 9.6% on the second quarter, with a strong performance in commercial and personal banking and a steep increase in specialized businesses. Starting with commercial and personal banking, revenues are up 7%, benefiting from a favorable interest rate environment and increasing volumes, so net interest income increased by 8.4%. If we look at France, net interest income increased by 4.7%, while in Europe, it increased up to 22%. It was more contrasted when we look at Belgium as a result of a base effect of last year. At BNL, the positive impact of increased volumes and interest rates environment was offset by the gradual adjustments in loan margins. Then, if we look at the other part of the top line, fees, dented by unfavorable market performances, but boosted by our leading positions in flow businesses and favorable positioning on corporates, private banking, and mass affluent clients, the fees increased shy of 3% year on year. They marked a steep rise in France, up 7.7%, on all customer segments, and more specifically, with corporate clients. Elsewhere in the Eurozone, the growth in banking fees was counterbalanced by the decrease in financial fees as a result of the unfavorable market environment. If you now look at the specialized businesses within CPBS, revenues were up 14.7%. In it, Arval and Leasing Solutions saw a sharp increase of 32.9% on the back of high used car prices, as well as volume growth. Personal finance saw revenues up 5.8%, topped up by the integration of floor and loan production volumes increased by 8% on last year, despite a lackluster environment in the automotive industry. So that's basically the top line in CPBS. And then if we look at the operating expenses, they were up 7%, reflecting the strong business momentum with strong positive jaws, 2.6 points. On a like-for-like basis, operating expenses are up 4.5%, reflecting the capacity of our commercial and personal banking networks to contain their costs and deliver operational efficiencies. Similarly, the specialized businesses confirmed their potential to grow at marginal cost with an extremely high positive jaws effect for our end-leasing solutions. Very high, basically 24 points. Regarding our risk profile, allow me for a focus this quarter on BNL and personal finance. You can see on the slides 27 and 31 the results of our initiatives over time to constantly improve our cost of risk charge on these two main contributors. Indeed, start with BNL. Portfolio has been moved away from very small enterprises toward larger corporates with higher intrinsic asset quality, higher growth, applying high selectivity at origination, higher recourse to guarantees, and finally, an acceleration of the NPL strategy. It resulted in a structural decrease in the cost of risk from around 120 basis points back in 2016 down to 57 basis points in the third quarter. Secondly, if we look at personal finance, where also we stepped up the proactive risk management and structural changes leading to an improved risk profile. As illustrated, the auto business represents now close to 40% of loans outstanding with a much lower intrinsic cost of risk at 45 basis points versus 190 basis points for personal loans. Moreover, the portion of credit cards fell to 11% of the mix. To conclude, a strong quarter for CPBS overall with a pre-tax income at 2.1 billion euros up 8.6% combining strong business momentum and a continued overall efficiency with, once again, positive jobs. Let's now move to slides 34 to 37, where you can see that our investment and protection services, so the IPS division, witnessed an overall good business drive despite the market environment and displayed a strong growth in results. And this, in a difficult market context, net asset inflows held up well. In wealth management, business activity was good this quarter, on the back of good net asset inflows, notably in France, as well as with high net worth clients. Despite these challenging market conditions, asset management achieved positive net inflows this quarter, emphasizing the resilience of the business model. saw a continued business momentum with a good performance on savings and protection. Gross inflows were strong in France and unit links represented the bulk of net inflows. Simultaneously, ESG is deeply embedded in the business with the distribution of open-ended funds classified Article 8 and 9 according to the European regulation. The alignment of our insurance investment portfolios with a carbon neutral trajectory and the launch of a property fund with a social dimension. So this is the overview. So if we now look at the P&L, IPS revenues increased sharply at 1.6 billion euros, up 8.9%. This is the result of a good performance of insurance, up 7.2%, despite the decrease in financial results caused by the more pronounced decline in market. It is also the result of the very good performance on the whole of wealth and asset management, plus 10%, reflecting a notable increase in wealth management on the back of a solid increase in net interest income, as well as a strong contribution from principal investments and real estate property management. Costs, up 4.8%, driven by business developments and targeted investments. The division delivered very positive jaws, 4.2 points, and pre-tax income was up 34%, with a very strong performance, particularly in this context. So to wrap up, strong results for IPS in a very adverse market. If we now switch to slide 39 and 40, which conclude today's presentation. So in a nutshell, BNP Paribas is in great shape for growth. One, growth in revenues, positive jaws, prudent risk management at the core of the solid performance developed by the group through the past quarters. Second, BNP Paribas model is a clear competitive advantage which drives our ability to serve clients and increase revenues. Third, our operational performance keeps on being high resulting in positive jobs and our cost of risk remains low on the back of our long-term proactive and prudent risk management. Four, in a nutshell, a powerful model which outperforms the underlying economy delivers a 10% growth in group net results this quarter and will ensure the successful execution of the 2025 GTS plan. So this concludes the third quarter. So fine, ladies, gentlemen, I thank you for your kind attention and I am pleased to take your questions.

Thank you, ladies and gentlemen. If you would like to ask a question, please press 01 on your telephone keypad. Please leave to your own set, ensure that the mute function on your telephone is switched off and that you are in a quiet area to maximize audio quality. We will take questions in the order received and we will take as many as time permits. If you find that your question has been answered, you may remove yourself from the queue by pressing 02. Again, please press 01 to ask a question. First question from Tariq El-Mejad from Bank of America. Sir, please go ahead.

Hi. Good morning. Good afternoon. Sorry, Lars. Just actually one key question. I mean, you've demonstrated in the last few quarters and today again that your asset quality is strong. Personal finance and P&L and Bankwest, you showed that actually it shifted towards lower risk profile structurally. The CAB, clearly trading is holding well. No drama there. And so... This is where the main source of cost of risk in previous credit cycles. So where the surprise could come from, negative surprise, this cycle? I mean, the market is pricing in quite hefty cost of risk to come, to explain your valuation. So what's really the area that could surprise and that maybe keeps you a bit awake, if anything? That's the first question. Second question is on the RWA growth, especially the CAB, where it's a profitable growth. I mean, the return on allocated capital is very high and healthy, driven by higher revenues and controlled costs. But the growth in the balance sheet is quite significant. I mean, it's in line with your GTS plan, but it came quite front-loaded. So is it on track and now you have to keep controlling your balance sheet or you're comfortable growing it? at this rhythm. Thank you.

Tarek, thank you for your one question, which I understand is basically two questions. So first, if I start by the asset quality, and let me tell you, yes, I do sleep well at night. So the asset quality, what is the reason why we feel comfortable? we are not a proxy basically for Europe so if you look at the countries where we are and if you see the impacts of the GDP and the likes that is above average moreover if you look at the clients our clients are basically corporates institutionals affluence and the likes so basically what we see is that there are levers of the impact that can be managed moreover If you look at what is so-called stage one and stage two, so the forward-looking levels of provisioning that we have, what else can I say? That we have truckloads of them, and that is why we've, and then if you look at the third quarter where there is no indication of deterioration, so basically all these are the elements why we feel comfortable to basically stick by our guidance of 40 basis points cost of risk every year over the plan. So that's on the asset quality. Then on your RWA growth, yes, intrinsically, we mentioned that at the base of our plan, our RWAs would grow at 3% annual level. And so it is true that now they grow a bit faster. The reason what we said is that basically we basically guided that the redeployment of the proceeds of Bank of the West would for, let's say, one-third would be used to accelerate growth if the market would allow it. And that's basically what we saw. Given some of the uncertainty, we saw some of the banks in the domain of CID to be a bit hesitant and so on. And so we basically stepped in. And we already, in anticipation, redeployed part of the capital that will stem from the sale of Bank of the West. So that's basically what it is. It's basically stepping up that part, but the intrinsic growth remains 3%. So, Tarek, those would be my answers.

Thank you, Lars.

Thank you. Next question from Jacques-Henri Gola from Quai de la Chevreuse. Sir, please go ahead.

Yes, good afternoon. Well done on the results. Two questions for me. Thank you very much for the guidance on net interest income at plus $2 billion. I was wondering how you broke that down at all, if it's something which is more back-loaded, front-loaded, or if for some simple-minded people like me, I should just divide the $2 billion by three and play it like that. And the second question, you were mentioning your markdown on leveraged finance. It doesn't look like it's not unsold, sorry, leveraged finance exposure. It doesn't seem to have been a big number, really. Are you expecting more of that? Or do you think that this is not something which is going to recur? Thank you.

Thank you for your questions. So first of all, on the net interest income. So the net interest income is something that is basically phased over time, given the time it takes on the assets to reprice. And so that's why we say this is basically what we see in 2025. But you already see steps now, right? If you look at the evolution of the net interest income in CPBS, for example, in the third quarter, they are up 8%. So you already see the glimmer of that. Moreover, if you look at security services, up 10%, the same thing. So that is basically what you see, but it's a gradual ramping up. And it's already part is there and the $2 billion full will be there in 2025. And then on leverage finance, let's not forget, I mean, this is kind of a temporary effect, right? So the things that have been originated and that we are warehousing in order to put them into the market, given what has happened in the market closed and so forth leads to a discounting and so this is what we have to take up into our mark to market but this is not a loss the loss would crystallize if we would sell it at this price and so which is something if the market will remain what it is we will basically take so it's a small and in it so that's the first thing so it's a temporary thing and it's not a real loss at this stage. It's an accounting loss, and indeed it is very small. It's written for us with two digits, whereas in many others you see three digits.

Okay, thank you so much.

Thank you. Next question from Julia Miyoto from Morgan Stanley. Madam, please go ahead.

Yes, hi. Good afternoon, Lars. Two questions for me as well. The first one may be a technicality on TLTRO. So will the changes that the ECB has just put through impact BNP, perhaps any losses on hedges or any comments on your plans on this line? So that's my first question. And then secondly, if I can ask you about corporate clients, that's the biggest part of your clients. First of all, on loan growth, what are you seeing? What are they using it for? Is it investments or rather working capital at this stage? And then secondly, I appreciate, you know, BNP's exposure to the Eurozone is focused on countries that are maybe less impacted, but still manufacturing is challenged across Europe, given the energy prices. So do you foresee... more, yeah, an increase in cost of risk next year. Thank you.

Julian, yeah, if you look at the net interest income. So the simple thing is, let's start, first of all, the $2 billion increase in 2025 that we mentioned is, of course, independent, not impacted by the TLTRO. So if we look at the TLTRO decisions of last week, it basically made the TLTRO has basically become economically neutral. So there is no positive effect. But as I mentioned, in the $2 billion and in all the plans that we have, we did not take the TLTRO into account. And so that's basically it. And then we have a holistic approach when it comes to managing our risks, and therefore it's basically factored in in the overall interest rate risk management. So that is on the TLTRO. Then on corporate clients, what we see in the areas where we are. So if you look at corporate clients, there are several indicators that I look at. There are commercial indicators. So that basically is what are the kind of volumes in cash management, trade, finance, and so on and so forth. And those are basically remaining very dynamic. And so there's basically no deterioration whatsoever that we see. And then also, if you look at the basic lending activities, we see that that activity remains very dynamic and very favorable. So that is basically what we see on those. And on the cost of risk, again, on the cost of risk, if you look at it, again, we are in the zones that are a tad less impacted than the average Europe. And again, we are on Our clients are the large corporates, the affluents and the likes, so they have possibilities to handle the things that they are facing. And so that is why I repeat, our cost of risk is low. We're basically on the stage three. There is hardly anything we see. That is what we anticipate. And even if there would be some pickup in cost of risk, that will be covered by as one as two. So I really, what else can I say? I was going to say, read my lips, but this is video. So listen to my lips. We basically anticipate 40 basis points every year until 2025. So Julia, those would be my answers.

Thank you. Thank you. Next question from John Pease from Credit Suisse. So please go ahead.

Thank you. Hi, Lars. So you indicated an additional €2 billion of NII versus the plan, but I guess inflation is obviously running higher than you'd expect it under the plan as well. Do you have a higher cost CAGR in mind out to 2025, or should we just think of you maintaining the 2% JAWS guidance off of a higher revenue CAGR? And then my second question is about Bankwest and the buyback. Do you have any more detail on when exactly you think the deal will close? And when would you begin the buyback? Would it be straight away or after full year results or after the AGM? And I presume the ECB is very happy given you're only returning a proportion of the 11 billion capital. Thanks.

Thank you for your questions. Well, the ECB is always happy, I guess. Sorry, that was not pun intended. So first of all, if you look at the objective that we gave into our plan, there is a reason why we gave top line and JOLs. Because if there are evolutions like what we see, for us, the main focus, what we will do and we will deliver is positive JOLs. That's basically the thing. And then on Bank of the West, well, Bank of the West, listen, I don't have an exact date, but there were basically three files which were submitted to the authorities, and we were the second. The first file had been approved by the authorities back in, two weeks ago, so mid-October, let's say. So we are basically next in line. When exactly will that be, I don't know. So we'll see, but there is no indication that there would be any delay, so it should be anytime soon, and when we know, you will know. And so basically, yeah, the process of basically neutralizing the effect of Bank of the West being gone, Well, we have to wait until it's closed, and then we launch the process to basically launch that.

Thank you. Next question from Matt Nemesh from UBS. Please go ahead.

Yes, good afternoon, and thank you for the presentation. I have a few questions, please. The first one is still on the $2 billion-plus NII guidance until 2025. Can I just confirm that this is a gross impact, gross of any increase in funding costs? And secondly, is this simply based on the current forward rates or consensus forecasts, if you could confirm that? And the second question is on costs on operating expenses. So far, it seems like the underlying OPEX increase is around 2%. So clearly, you're keeping a lid on that. Inflationary pressure is everywhere. I appreciate your comments on the Joe's, but if you could just give us a sense, what could we expect on underlying operating expenses going into 2023? Do you see any particular areas where it could be difficult to control these as tightly as you manage currently? Thank you.

Matt, thank you for your questions. Yeah, so the 2 billion effect is basically on the picture that we had end of September. But the further evolutions should not necessarily materially change that. So that is the $2 billion increase that we see stemming from that. Then when we look at the costs, so indeed, yes, we focus on the jaws, but there will indeed be, if you look at the dynamics that we anticipate, So that's basically already what you saw in the third quarter. There are some effects of inflation. There are some countries where, by law, salaries are impacted by inflation and so on and so forth. So there is some effect. But we will continue to fight this effect. This is what we've done, and this is what we will continue to do. So we will continue to see how we can further step up variabilizing costs, how we can further step up our platforms, how we can further step up the consolidation of activities So that is the two things. So there can be, in some parts, there will be an impact of costs going up, but we will also step up further the fight and the optimization of the cost basis. So Matt, that will be my two answers.

Thank you, Lars. That was helpful.

Thank you. Next question from from HSBC. Go ahead.

Yes, good afternoon, Lars. A couple of questions from my side. So firstly, on Arval and the used car sales margin, I know it still looks very high in absolute terms, but I'm looking at it quarter on quarter. Do you think we've seen the peak there now? And then looking forward, how quickly do you think the used car profits at Arval start coming back to more normal levels? You know, should we start sort of penciling in more normal number for 2023? And then more broadly on your asset heavy specialized businesses, I guess, including Arval, but also things like personal finance. How would you say the higher interest rates, the higher funding costs, they impact the revenue margin there in those particular businesses? And do you feel, at least in the short term, you've got enough scope to pass on the higher funding costs on the pricing side? So that's on the asset-heavy specialized businesses. Thank you.

Thank you for your questions. So first, if we take Arval. So Arval, let's not forget, yes, there is the second car value, but we are, as everything, diversified. And like everything, it comes in trees, yeah? Not the trees like that climb where you can climb in, but the third, the third, the third, yeah? And so basically there is indeed a third which is stemming from the resale value. There is a third which is stemming from the volume of new cars and the related financing. And then thirdly, there is the added value. And so what we see is that at this stage, the amount of new cars and the financing related is down because the production is like 20%. below where it was in 2019, and the resale value is higher. So yes, at some point in time, and they are linked. The fact that there are less cars basically means that the resale value of second-hand cars is higher. So at some point in time, these things will neutralize. So the second-hand car will come down, whereas the volumes will go up. And so that is why we feel in that diversified model that the contribution of Arval will remain very charming. And then on personal finance, yes, on personal finance, what we have there is that intrinsically the businesses that we have there are relatively short-term. So that basically means the volumes turn over, and therefore the repricing capacity that we have will kick in. But indeed, yes, it will not be immediate. It will depend on the turnover, and so that's basically what we anticipate. Okay, those will be my answers.

Thank you. Next question from Andrew Simpson from KBW. Sir, please go ahead.

Good afternoon, everyone. Two questions for me, one on capital and then one on cost of risk again, I'm afraid. So first one on capital. Outside of the Bank West deal, what are the moving parts in capital for the next few quarters? Are there any regulatory headwinds to come in that we should be conscious of. And then within that answer, I'd definitely be interested in your thoughts around what the ECB has been talking about around the 2R increases and add-ons for climate risk and how they are kind of thinking about what you've been saying today on slide 17. Is that the kind of messages they want to hear from you? Is that the right kind of stuff or not? And then secondly, on cost of risk, I definitely appreciate all the messages you've made around the quality of a client base and the collateral you've got behind the book. I think we do all understand that. Nevertheless, the economic data is getting worse and the GDP data has been revised down significantly even from a quarter ago and now it's going to be negative next year for Europe. So that doesn't seem to have caused a big step change in your provisioning for this quarter. So, you know, if you're asked what kind of metric or whether it's a level of GDP or something else would make you kind of materially step up your stage one or two, one and two, sorry, provisioning much higher, you know, there's got to be something out there that would make you change your mind or make you more cautious. Thank you.

And listen, maybe I got confused on your capital. Your question is that what are the other drivers, right, on what will impact capital? It was not related to Bank of the West, or did I misunderstand your question?

No, no, I understand the Bank of the West. It's more like, are there any other kind of regulatory headwinds that we should expect?

Yeah, no, I got it. I understood correctly. So if you look at it, there's basically two things that you can see in the press. Well, in the press, no. There's one thing, if there is a new regulation coming, well, there is one, which is IFRS 17 on insurance. So that is something where basically... the spread in time and the interaction between capital and P&L will change, but that is something where we will basically, as IFRS 17 will be active next year, we will basically restate our results and take it from there. So that's the one thing. And on the second thing, on the pillar two add-on that you mentioned on the climate risk, I take it this stems from comments made by the ECB yesterday that basically they consider that banks have to adapt, and if they don't, there is this stick that they have on basically adding capital requirements. And so I basically probed on that, and so this is not a generic thing. This is just by saying, listen, as always, the supervisors have the tool, quote-unquote, of Pillar 2 if there are concerns that they see that banks are not treating and that will come back to haunt them. But that is something that is not applicable for us. As you know, we are on the vanguard of all of these things and all of the metrics that we are doing. So that's on the capital questions bar Bank of the West and the redeployment of Bank of the West. And then when we look at the cost of risk, no, listen, on the cost of risk, again, as I mentioned, we consider that the 40 basis points is a maximum. So it's a maximum for us every given year. That's the maximum. Like this year, we will not be there. And that's basically it. So again, why do we say this? But again, if you look at the economy, BNP Paribas is typically performing better than the economy because we are basically in countries that already have an outlook in the economy above average in Europe. And then moreover, we are in the metropolitan areas. So in France, we're in Paris, Bordeaux, Lyon. So that is also an evolution which is a tad above what the average in the country is. So that's basically what we are doing. And again, on the stage three, so the ones that are in default situation, there is hardly any need to add on top. And then we have taken into account a deterioration in the scenarios, deterioration in inflation, deterioration in the war and so forth, to basically step up our provisioning as one and as two. And as I mentioned, in basically in the last two quarters, we've stepped up, we've added 700 million. So what else can I say? So in synthesis again, we are in a positioning in the countries, in the clients, in the way we accompany clients, in the way we underwrite clients, we are typically performing better than the average economies. Moreover, we don't see any in the stage three. On the S1 and the S2, we stepped up. And so again, that's why we feel comfortable to say that the maximum in any given year will be 40 basis points. And as you see already this year, we are well below that. So Andrew, that will be my answer. Yes. Sorry, Marie.

Next question from Amit from Barclays. Please go ahead.

Hi, thank you. I just wanted to, I mean, I appreciate there have been a few questions on NII, but just another one on that. I just want to understand, I mean, obviously there's this 2 billion incremental income versus the plan. I mean, we've spoken a bit about inflationary pressures too, but How do you think about that from an investment standpoint? Do you think that gives more room, obviously, with the cost-income ratio to invest a bit more into the business? And so just curious your thoughts there. And then secondly, just curious in terms of what that bakes in, in terms of are there any kind of offsetting factors we should also think about in terms of the net contribution to NII? Thank you.

Thank you for your questions. So, yeah, basically, so we made a plan in moments when the rates were different, and we basically said this plan is built on the so-called GTS, growth, technology, sustainability. And so that is what we're doing. So we're continuing to transform the bank, to roll out our platforms. That's intrinsically what we do, and that's kind of the base. And what we see is that in that environment of interest income, yeah, there will be $2 billion more. But intrinsically, we stay on our plan. I mean, because the plan, we grow as fast as we can. Fast as we can, meaning underwriting the clients with the constraints and the prudent stance that we have. So that's basically what we do. We grow as fast as our overall prudent stance allows. And basically, that is in the plan, and that will be accelerated somewhat. by the proceeds with Bank of the West. And so we basically stick to the rollout in the plan. And then if you look at the pickup in the net interest income, well, the thing is the net interest income, as we forecast it in the countries where we are, it is a gradual increase. And so what could be a risk? It could be a risk, but in particular in the situations where the step-up in net interest income can be very rapid and basically massive. Because if that's what is happening, and on top of that, if you would be really on the personal banking kind of sphere, that would lead to a pickup in cost of risk. But as you've seen with us, it's basically a phased pickup. We are basically on corporates. We are basically on the affluence. So from that point of view, for us, and it's back to the maximum of 40 basis points, that's basically it. So the higher risk would be on the cost of risk, but in particular, in situations where the net interest income would step up a lot faster, and for banks that have basically, let's say, the retail at the core of their client base. So, I mean, that would be my two answers.

Thank you. Next question from Matthew Clark from Major Banca.

Go ahead. Good afternoon. So just a question on the FX headwind in your CT1. Firstly, I just wanted to understand if there'd been any mark-to-market impact from the hedging of the Bankwest proceeds that you'd taken into shareholders' equity or through your P&L so far this year, or whether that's a kind of deal contingent hedge that will only impact you at the closing of the deal. And then the next question was just on the sequential NII trends in your retail divisions where they were sort of down in several quarter on quarter this quarter. How long should we have to wait until we start to see some of the benefit of the rate rises start to creep through there? I understand 2 billion over three years and that you're long and sensitive, so it will come gradually. But it looks like you have actively hedged out short-term interest rate risk there. So I'm just wondering how long until we start to see that gradual benefit come through, whether we have to wait more quarters or whether we should start seeing it next quarter. Thank you.

All right. Thank you, Matthew. Several things. So on the Forex, the Forex is basically linked to the impact, for example, on the RWAs. So the RWAs, if they are basically not in the Eurozone, that basically makes them that effect, and that's basically what you see that weighs on it. That's basically it. There's nothing else basically to mention. There's no particular hedging effects when it comes to Bank of the West. And when it comes to growth, yes, I understand that indeed the net interest income and the phasing But let's not forget, and I'll answer your question on the phasing. It's one of the elements. But let's not forget that that is one element. If you look at the redeployment and all of the acquisitions and the bolt-ons that we have done, that delivers a tremendous growth, which is quite unique to BNP Paribas. But back to the net interest income. So as I mentioned, the net interest income, and particularly in the countries where we are, it takes time to materialize on the asset side. So that is why It is ramping up towards 2025. And then if you compare quarter after quarter, and particularly if you compare to previous quarter, there was a base effect, and particularly in Belgium, that basically distorted. So if you compare it to a year ago, where you see the evolutions, the evolutions that I mentioned, both in CPBS and also in security services. So that is basically what it is. It is ramping up on the asset side, Again, this makes us comfortable that there will be no negative effects in the cost of risk. And on top of that, there is the phasing in of the new assets with the redeployment of the proceeds from Bank of the West. So that's basically the growth for BNP Paribas. Thank you.

Thank you. Next question from Flora Bocayu from G3.

Madam, please go ahead. Yes, thank you. Good afternoon, Lars. The two questions I have, the first is regarding the talks apparently from the ECB around potentially a new capital add-on on leverage finance exposure. Obviously, you know, you would probably be one of the players most at risk on that front. So any idea how much of a capital add-on we would be talking about there? So we have an idea, you know, of the magnitude. And the second question is regarding the remuneration on the excess reserves at central banks and especially at the ECB you have substantial amounts so I was just wondering if like the TLTRO those are booked in the business lines or if this is booked in the corporate center thank you

Flora, thank you for your questions. So, yeah, when you look on the ECB and the stance on that leveraged financing, what we see is that indeed the ECB considered it as a point of attention, let's put it this way. But the thing is, and they use a criteria, they basically say, well, a trigger for that is EBITDA multiplies, like, for example, six is a consideration. Now, the thing is, if you go to the U.S., you basically see there is also that EBITDA of six. So you say it's the same thing. But there is a difference. In the U.S., there is EBITDA six times, and then there is comma. And the comma is, yes, but do you have collateral? Do you have, have they, over the last couple of years, continuously served all their needs? Is it a long-term client? So there are all kinds of criteria. And so that is something that the ECB is also looking at. So they say, yes, This is a point of attention. But the important thing is that they have time to consider how banks are basically managing that, what stands they have, how large are the tickets, are there multiple small tickets, and so on and so forth. And so that's what they do. And so they can consider that this is a point that they want to consider into the overall risk is what they do. And then they basically want to make sure that they talk to all of the banks to see how it is managed. And that's basically with all the things that they do, right? It wasn't the time of the liquidity. It was the same thing. So that's basically what we see them doing. And so on your question of the reserves deposited at the ECB, well, that is for us a relatively small amount. It's a tad shy of 50 million that one could anticipate, and so that will be foregone. That's basically it, Flora.

Thank you. Next question from Delphine Lee from J.P. Morgan. Please go ahead.

Yes, good afternoon, Lars. Thanks for taking my question. So my first question is, sorry, just going back to the interest rate sensitivity, that 2 billion. Just wondering if you could share with us a little bit more color around the assumptions that you have used for that, for that 2 billion, uh, in terms of the deposit beta or in terms of the repricing on the, on the loans, if you, um, just wondering kind of, you know, um, for example, what, if you've, what, what, what assumptions you have taken on the, for example, I know it's, it's small for you, but, but still just, just wondering. Um, and then my second question is, uh, Just on the corporate center, if you adjust for the DVA gains for both this quarter or for the nine months, it looks like the revenues were quite negative. Can you just maybe explain a little bit what happened or what runway we should really expect in the future? Thank you.

Delphine, thank you for your questions. Listen, in order to give guidance and the like, what we typically always do is that whatever guidance we give is kind of bottom-up and we crystallize it so that there are no surprises. And so that's basically what we've done. So we've basically looked in all of the countries where we are, bottom-up, long discussion, what is the behavior on the deposits, what is the behavior on the assets, what is the repricing, and that's basically the process that we have done and that we have underbuilt the evolution. Then when it comes to the corporate center, the corporate center, listen, it's something which has its own life. So there are elements that play in there, which are like the time value of shares, us having shares of BNP Paribas in the books and you have to eliminate them and the like. So that's basically what happens. And so yeah, one quarter, they can be the time value of things and then the previous grid cannot be there. So if you look at the corporate center over the first nine months, you basically see that the impact is negligible as we have guided. So that's basically the life of that. There's nothing particular to mention. So Delphine, that will be my two answers.

Okay, thank you.

Thank you. Next question from Anke Rengen from RBC. Please go ahead.

Thank you very much for taking my question. The first is on the distribution for financial year 2022. So you accrued 60%. I just wanted to understand at what point do you decide about the mix? Because as you say, up to 50%. Because I guess last year you announced a buyback with Q3 results. And I mean, if it's only next year, you would be running the Bank West buyback, hopefully at the same time. So how would you think about the mix under these circumstances? And then on slide five, where you talk about not just the NII uplift, but also about the benefit of the bolt-on acquisitions, are most of them incremental to your 2025 plan as well? Or are they basically already back then? Thank you very much.

Okay, thank you. I'm not sure, could you rephrase your second question? When you asked about the distribution that I understand, and then Bank of the West, can you repeat your question?

Yes, so if you only decide what full year results about the mix of the distribution for financial year 2022, so let's say, and then you decide maybe 10 or 60% as buyback, but How would that in practice work? Because I guess you want to start the Bankwest buyback as well. So is it more likely that the 60% are as a cash dividend? Thank you.

No, no. Anke, thank you for your questions. No, the thing is, listen, we basically mentioned that the distribution over any given year would be, let's say, 60% with at least 50% in cash. And so the way it looks like, that's what it would be, right? It would be 50% cash, 10% of share buyback, and that's basically it. And then the rest is basically the share buyback related to Bank of the West. So if you look at it, I put it simple, right? I mean, if you basically look at that, there's $4 billion share buyback to neutralize Bank of the West, let's say. And then if you take the results and you take 10 basis points, that would be, I don't know what, another billion. So that would be 5 billion. And that's basically what we would do. And that would be, well, whatever, the time it takes to do so. So that's it. So it would be 50-10 and then 4 billion on top.

Okay. And, I mean, I guess you need to wait for full-year results or your AGM, because I guess last year you announced the buyback with Q3 results.

Yeah, no, no, here, yeah, but the thing is, here we want to make sure that the 50% and the 10% basically work, right? And so that's why it would be more logical. Listen, we have to serve equity and debt investors, yeah? And so if we want to have that evolution, so probably for the 50 and 10, yeah, we will wait to launch it until we have the the full year results and for the four billion, well, we have to wait until the deal is closed, right?

Yeah, thank you. Thank you. Next question from Stephen Stallman from Autonomous Research. Please go ahead.

Hi Lars, good afternoon. Two questions from my side. First one on TLTRO. As you said, it's going to be neutral now, value neutral you could say. What are you going to plan to do with your balances? Are you planning to prepay? And just for illustration, if you were to repay all of your TLTR, what would that do to your LCR ratio, please? And the second question on cost, you are disclosing cost growth at constant scope and FX of 5% after nine months, year on year. could you go roughly give us a sense of how much of that is coming from general inflationary pressure and how much is discretionary spending decisions thank you very much thank you if you look at for your last question if I start with that on the on the costs of

So indeed, what we have guided is that there is 2.7% of the increase, which is basically forex, and 0.6% is the parameter. And then you have 2.1%, which is stemming from the organic growth. And then you had inflation, and that inflation is basically compensated by the cost. So that's it. So half of the growth is stemming from the change in parameter, and intrinsically, the remaining 2% is stemming from, let's say, the growth that basically is at marginal cost.

You have already taken the scope effects and FX effects out of the 5%, right?

No, no, no. If you look at the cost evolution, if you look at it, there is 2.7% which is change and 0.6 which is parameter. That basically, if you look at the numbers, the overall cost evolution of the year is basically 6%. And if you look at constant scope and exchange rate, that becomes 2.8%. So there is 3.2%, more than half, that is stemming from the Forex and the parameter.

Right. I guess I was looking at the 5% for the operating divisions after nine months. I did not include the corporate center. But I think that's fair enough. Thank you very much, Lars.

Okay. And then on your question for the TLTRO. So, yeah, the TLTRO, it basically now becomes like any other financing. But to some extent, it is relatively easy in the sense that collateral is there and what have you. So, yeah, it's, of course, it boosts the LCR. But our LCR is in territory, which is fine. So we're just reflecting that. on how to optimize and add optimization. Well, we'll let you know when it happens. All right. Thank you, Lars.

Thank you. We have no more questions based on Lars.

So we have them by Pigeon. Oh, sorry. I was joking. I was joking. Sorry. Sorry for that. So anyway, I think in synthesis, you've all seen the results. We've clocked in a bottom line at plus 10%. which is better than the underlying economy, better than what we had in the plan, and it's basically also on the back of us anticipating and growing faster than average given our diversified approach. So with this, I thank you very much, and I wish you a very good day. Bye-bye. Thanks.

Thank you, ladies and gentlemen. This concludes the call of BNP Paribas, third quarter 2022 results. Thank you for your participation. You may now disconnect.