Bnp Paribas Ord

Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas' second quarter 2023 results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas' IR website, invest.bnpparibas.com. During today's presentation, you will be able to ask your questions by pressing star and 1 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 now like to hand the conference over to Lars Maschnien, Group Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Hello, everyone. I trust you're doing well, and welcome to BNP Paribas' second quarter results. Today, I'm thrilled to share with you these very solid results as a further illustration of the strength of BNP Paribas' unique model Indeed, the second quarter results show BNP Paribas' ability to deliver above-average growth in very different environments supported by businesses and leading platforms, and always with the same obsession, serving clients, partners, and the economy throughout the cycle, being pertinent, disciplined, long-term, and ambitious. It resulted in a significant organic growth more than offsetting the impact of the sale of Bank of the West in the second quarter, as you had already seen in the first quarter. It nurtures our long-term performance while more than supporting our 2023 trajectory and strong ability to create value for shareholders. The group confirms the robust trajectory of the distributable income for 2023 and is very well on track to deliver its ambitious targets with a significant increase in earnings per share and return to shareholders. We also confirm that we just received the authorization from the ECB for the second 2.5 billion euro tranche of our share buyback program. It will be launched in the days following the completion of the first one being beginning August. Moreover, during this call, I will detail the levers that deliver a double-digit bottom-line growth and a related EPS growth of 17%. This, as we already bought, 3.5% of our market cap in the second quarter. And so this EPS growth would even be 25% following the second share buyback tranche that I just mentioned that will start beginning of August. So with this, let's start on slide three and our key messages. Revenues increased by 3.3% year-on-year, when excluding exceptional items which are particularly elevated this quarter as a result of exogenous events. This growth is supported by the balance of our model and the performance of all our operating divisions, which are themselves diversified. Not only diversified, but also fully integrated with, as an example, almost 30% of our revenues driven by our unique ability to cross-sell in between. If we look at the divisions, CIB demonstrated perfectly the effectiveness of this model, which combined with a change of scale resulted in quasi-stable revenues compared to a high base last year on a like-for-like basis. Later on in the presentation, we will see that if we add cost and cost of risk and look at pre-tax income, CIB is up 5%. If we go back to revenues and we look at CPBS, delivering a steady 3.5% growth, while EPS grew by 0.8% on a like-for-like basis. As expected, the growth is disciplined and operating expenses are well contained and increased by only 1%, generating an intrinsic positive jaws effect of 2.3 points. Moreover, the Group continues to benefit from its long-term, prudent, proactive risk management, as demonstrated by a cost of risk that stood and remained at the low level of 31 basis points, well below our guidance of less than 40 basis points. Furthermore, our financial structure remains solid, with the Group CET1 ratio at 13.6%. The increase in bottom line is strong. Our net income grew by 16.4% versus a year ago, excluding the items and Bank of the West contribution in 2022. In addition, and as it was the case in the first quarter, if you add back the contribution of Bank of the West in the second quarter a year ago, second quarter earnings this year are still significantly higher. So, I repeat, organic growth more than offset the impact of the sale of Bank of the West. As a consequence of this strong performance and applying the adjustments we committed to, our distributable net income clocked in at 3.3 billion euros in the second quarter. As you know, this is a fair representation of our intrinsic performance and the basis for our distributions. The related earnings per share clocked in at 4.72 euros, almost 17.17% above last year. So what else can I say? These results are solid bedrocks on which we will achieve the 2023 objectives of growth in distributable income, EPS, DPS. And hence, we confirm that we anticipate a distributable net income for 2023 at least 1 billion euros above 2022 results as reported. It has at least 1 billion euros above 10.2 billion euros. If we now turn the page and look at the exceptional and extraordinary items in the boxes that you see on slide 4. As you can see, these items are particularly elevated this quarter as a result of exogenous events. Let's be clear, these elements are no litter, but aim to clarify the underlying results as the base for distributable income. As expected, you will also find a similar extraordinary impact for the first quarter, resulting from the adjustments of hedges related to the changes in the ECB terms and conditions of the TLTRO applied end of last year, a negative extraordinary item booked in corporate center, and excluded from the distributable income. If you now move to slide five, with our full P&L providing details of the key items. So again, exceptional, exceptional including extraordinary items, are particularly elevated this quarter as a result of the exogenous events mentioned, and it indeed introduced some noise in the reading of our results. So what is the right KPI to measure the intrinsic performance of the group this quarter? First, if you exclude exceptional and extraordinary items, what you can see is that the group net income in the second quarter 2023 is 16.4% higher than in the second quarter 2022, a powerful indicator of the group's intrinsic performance driven by a strong growth in revenue but also positive jaws and cost of risk at a low level. Basically, you will draw exactly the same conclusions if you only remove the extraordinary impact of the adjustment in hedges we had to do given the ECB's decision on TLTRO. And indeed, at €3.3 billion, the distributable net income, which is the basis for shareholder return, is still 10.2 percent higher than in the second quarter 2022 and maybe to conclude on this let me mention our return on tangible equity standing at 13.6 percent if we move on and please slide to slide six i take it the messages jump off this page basically since 2018 our net result has grown organically by a solid 36.7%, excluding exceptional items, illustrating our continuous growth in all environments. As I used to say, we're not a one-trick pony, which you can clearly see. So it is the result of the effectiveness of our model and our strategy on a long-term basis. It is also a tribute to the continuous development of our group Benefiting from an acceleration in growth on the back of a change of scale resulting from the different initiatives we have launched and implemented to continue to grow our unique client franchise and platform. If we move on to slide 7, we have selected key KPIs that are at the core of our disciplined growth and long-term vision. If we look at them first, and this has been a while with us and will remain one. It's a long-standing feature of BNP Paribas and the balance of our capital allocation and diversification. Basically, three-thirds. A third for CIB, a third for commercial and personal banking, and a third for our specialized businesses in CPBS as well as IPS. It results in a solid resilience but also reflects our ability to capture growth and serve clients increasing our market share, penetration rates, and cross-sell revenues with clients and partners that are the best positioned in their sectors and geographies. So that's the first. Second, you see the steady progress of our ROTE over the recent years. It is a clear sign of our profitable growth strengthened over the years. And third, to illustrate How important is risk management and risk appetite management for the group? A graph at the right that we like, evidencing that the group has one of the lowest level of cost of risk over gross operating income, so gross operating income, revenues minus cost, and this through the cycle compared to Eurozone peers. This maintained and disciplined balance between risk and growth is at the core of what we do and the way we develop our businesses. It is one of the levers of our resilience, but it is also, as demonstrated in the past years, one of the reasons sustaining the acceleration of our growth when opportunities appear. Finally, we would not have completed TOUR if we did not mention the opportunities given by the redeployment of the proceeds of the sale of Bank of the West, which puts us in a unique position to step up our long-term value creation and growth, should it be through organic or bolt-on acquisitions. If we swipe to slide 8 and we focus on the revenues of the operating divisions, a good set of results for CIB, thanks to its diversification, it is indeed a tribute to what makes our CIB special. long-term and in-depth relationship with our clients and the back of a full cover of their needs with balanced businesses and leading platforms that build those strong client franchises. As a consequence, CIB's revenues were quasi-stable, supported by the strong rise in global banking revenues, up 17% on a like-for-like basis, as well as an increase, a continued increase, in security services. As a result of a more back-to-normal activity, and particularly on micro-products, global markets were down 11% on a life-like basis versus a high base a year ago. But still, 32% increase when compared to the second quarter of 2018, as an illustration of a new dimension in that space. I will come back to market share gains later on. If we now turn to the second division, We see very positive momentum for CPBS, with a sharp 3.5% increase like-for-like basis, driven by the strong performance of commercial and private banking in the Eurozone, boosted by the rise in net interest revenue. Also, a solid increase in revenues for specialized businesses, with Arval and Leasing Solutions up 17%, witnessing healthy growth in volumes, as well as maintained high level of contribution related to used car prices. Less of a favorable environment for Europe Med and personal finance. The third division, IPS, delivered an increase in revenues of 0.8%, facing contrasted environment dynamics, combining a strong increase in insurance, 9.9%, and wealth management businesses, 6.7%, which have been offset by a more challenging environment, for real estate. If you now flick to slide 9 and look at the operating divisions and the costs, and they delivered a positive Jaws effect, the operating divisions of 0.7 points, which demonstrate that costs are well under control, benefiting from our industrialized and mutualized platforms, but also from a very disciplined approach, as illustrated by cost, almost stable in the operating divisions when compared to a year ago. In that context, CPBS delivered very positive jaws, three points, thanks to the ongoing rationalization of our operating model and continuous cost-saving measures. Operating expenses were down 1.7% in commercial and personal banking, with a very positive jaws effect of 3.5 points. They were up by 4.5% in the specialized businesses, which continued to invest in their development initiatives and, as you can see, in the evolution of their revenues. The second, if we look at CIB, operating expenses were down 1.1%, with a very positive JOLS effect for global banking, shy of 14 points, and lower costs at global markets. At IPS, an increase in operating expenses by 2%, supporting the targeted investments and business growth that that division is pursuing. And particularly, if you look at the positive JOLS, you can see them clearly in insurance and wealth management. If we now go to slide 10. As you know, optimization of our setup and cost discipline are at the heart of our growth plan. This is what you can see on this slide 10. In particular, leveraging our internal platforms is a key priority to better allocate resources and further mutualize technological offers. The objective is a 25% increase in resources in the main shared service centers between 21 and 25. 25% increase. If I put this in numbers, it basically means an increase of 5,000 FTEs. 70% of this objective is already reached, which shows the pace of our adaptation to the environment. In addition, we adapt our premises and office space to integrate new work usage, lowering our mutualization ratio down to 0.75%, through flex offices and fewer inner city locations. We have also reduced the number of branches by more than 6% since 2021. Last, we are ensuring a strong discipline on investments with a proactive management of, in particular, external spending. All these levers have brought more operational efficiencies. And as a result, our recurring savings have been revised earlier by an extra €300 million, so leading up to €2.3 billion of reductions over the plan. And this will support our ability to deliver positive jobs each year in combination with the end of the ramp-up of the Single Resolution Fund, representing a decrease of €0.8 billion in operating expenses between 2023 and 2024. If we now look at the risk profile, And we turn to page 11, where you can see that thanks to our prudent risk management, our cost of risk has been low over a long period. Below our plan, guidance of 40 basis points in 2017, except for the year 2020, when we had an exceptional level of ex-ante provisioning, so the stages one and two. Another powerful illustration is our capacity to significantly grow our global markets activities, with the level of VAR almost unchanged in absolute amounts. It is a way to confirm that our CIB has grown in a disciplined way, still maintaining a very prudent and proactive approach in terms of risk management. It demonstrates as well how a disciplined change of scale can indeed improve our risk profile. Finally, we like to stress out pretty high stock of stages one and two provisions covering two times our cost of risk on non-performing loans as another evidence of our prudent risk attitude. If we now focus on the second quarter, you can see the confirmation of a low cost of risk at 31 basis points at group level because of, one, low impairments on defaulted assets, the so-called Stage 3 provisions, and two, a limited release in the ex-ante provisioning. If you now move to each of the businesses on slides 12 and 13, you will see a similar pattern of low levels of cost of risk across the board. So if you allow, we skip those two. You can peruse them at your own time. And let's turn to slide 14 on the financial structure. You can see our stable CET1 ratio clocking in at 13.6%. So if you look at the dynamics, organic capital generation through reported net income, after setting aside 60% of our distributable results, net of the evolution in our risk-weighted assets had a 10 basis points positive impact this quarter. This 10 basis points was offset by the effect of new partnerships for personal finance that stepped up the volumes for the amount of 10 basis points. All other effects had limited impact on the common equity tier 1. As there is a whole flotilla of metrics, there is also the leverage ratio. It clocked in at 4.5%, well above the requirement. Our liquidity profile at the end of this quarter stands pretty high. with an LCR at 143% end of period, increasing by four points compared to end of the first quarter. Expressed in another way, the level of our liquidity buffer, the HQLA, amounted to €404 billion, out of which 70% in deposits at central banks. Or even another way, our liquidity reserve is a whopping €473 billion and includes €286 billion of central bank deposits. So all is fine. Let's move on. Slides 15. And you can see how strong and deeply ingrained our value creation model is. If you look first, a continued growth of our net tangible book value per share in all environments year after year, reaching 83.8 euros as of the end of June. As I said, up every year and up 29% versus 2018. This growth is even amplified when translating it into earnings per share, with an outstanding EPS growth of 56% since the first half of 2018. It has almost doubled the tangible equity per share growth. And then there is a third one, which even further amplifies, is the increased ordinary payout ratio, now at 60%, and significant share buyback program executed for the equivalent of 7% of our market cap in 2023. Hence, if you take all that, a tremendous increase of the amount to be distributed to shareholders, up 63% over the period to reach 3.5 billion euros for the first semester of 2023. As a finisher, allow me to conclude that we are happy to confirm that we just received the authorization for the second $2.5 billion tranche of our 23 share buyback. And as I said at the beginning, we will launch it as soon as the first one is finished, which should be in the next few days. So this is the G part of GTS. So we have the GTS Plan 25. We talked about G growth. And let's now go to slide 16 on the T, the technology. And indeed, investing in technology to support operational performance, but also innovation and growth is a top priority. Our disciplined investment strategy is built on three major pillars, and these are not just buzzwords. Let's look at them. Number one, we intensively deploy artificial intelligence, leveraging our own resources and advanced platforms while intensifying partnering with deep tech companies. So more than 700 use cases have been rolled out with the intention to create significant value by 2025 of more than 500 million euros per year. We have also identified 100 use cases for generative artificial intelligence experiments with large language models used, for example, by Chad Gibity-Hobart. They will increase the scope of usage of AI, but always on the basis of strong standards in terms of security. So that's the first. Second, an open information system. Our successful IT marketplace, offering close to 300 IT products to share internally, combined with the APIization, which is also broadly adopted. It brings interoperability and rationalization with more than 800 APIs available, sustaining more than 620 million transactions every month. Third, a safer and more resilient IT. Here comes the cloud with the objective to embark more than 60% 6-0 of our apps by 2025. We are currently at 42%. And last but not least, These developments make us a leader in the industry, attracting high-end AI and IT profiles. Another evidence is our number of partnerships with startups. If we continue, and contributing to a responsible and sustainable economy is another major foundation of our plan, so basically the S in GTS, and this is what you can see on slide 17 and 18. As the largest Eurozone Bank, we believe in our responsibility to redirect financing towards low-carbon projects with the aim of contributing to a net-zero economy by 2050. For more than a decade, we have been deploying very significant resources and efforts for the energy transition, as you can see on slide 16. These actions, these decisions over the last 12 years with an acceleration in 2022 and 2023, are evidencing our clear ambition to support the advent of a carbon neutral economy by 2050. Indeed, we have set ourselves ambitious targets to support our clients in the transition and accelerate our pivotal move towards financing low-carbon energy production. By 2030, we will have completed the transitioning of our financing activities to the production of low-carbon energies by more than 80%, and this in less than 15 years. Our leadership remains with our number one worldwide ranking in sustainable bonds and green bonds, as well as the 2023 Euromoney Award of world's best bank for sustainable finance, obtained for the third consecutive year. I'll let you peruse slide 18, where you can review in detail on the six most emitting industrial sectors, the stringent commitments we have set ourselves to align our portfolios to the 2050 net zero targets on the basis of the International Energy Agency scenarios. I would now like to take you through the divisional results. Let's start the review of the group's operating division with CIB, starting on slide 21. What do we see? The second quarter is a tribute of the successful strategy deployed at CIB with a strong focus on leading and reinforced platforms strategically aligned to serve corporates and institutional in all environments. And CIB saw another quarter of good results on the back of balanced and robust performances in all businesses in a more quote unquote back to normal environment. CIB has changed scale and continues to grow. Ranking in the top three in EMEA with confirmed leadership positions, CIB has expanded its global market shares by 26% since 2018, with market shares expanding in global banking by 19% and global markets by 28%. Leveraging its diversified and integrated model, CIB confirms its resilient growth year after year as evidenced by the evolution of the quarterly pre-tax income and its change of scale. All you have to do is to have a look at the second quarter 2023 that is more back to normal, but with continuous market share gains when compared to the second quarter 2018 or 2019. Please note, in addition, that it reached a record level in the second quarter. Indeed, benefiting from its diversification, CIB's revenues decreased slightly on a like-for-like basis, minus 0.7%, compared to a year ago. And this is reported by very strong growth at global banking, good resilience at global markets, compared to a very high second quarter a year ago, and a continued good performance by security services. If we look a bit deeper into them, global banking, continues to gain market share, as mentioned, plus 19% compared to 2018, with an acceleration in the first half, 23%, as illustrated on slide 22. Hence, revenues in global banking were up 17.5%, and growth is seen across all business lines and regions, and sharp gains in transaction banking, up 75% in EMEA, and strong growth within capital markets, particularly in the Americas and EMEA. Secondly, global markets continue to gain market shares worldwide, as mentioned, plus 28% compared to 2018, supporting the revenue trend you can see on slide 23. As you have seen it, client activity has more normalized levels on the whole in the markets in the second quarter, and particularly on macro and in equities, while overall activity on credit markets went up sharply. In this environment, Global markets showed a strong resilience compared to a high first quarter 2022, with revenues decreasing by 11% on a lifelike basis. Facing robust credit markets, notably in EMEA, and normalized client activity on rates and foreign exchange, fake revenues were down 18% year-on-year versus a very strong second quarter, particularly in macro, a year ago. Facing lower client activity versus a high base last year, equity and prime services still displays a very good relative performance with revenues decreasing by only 3%. Finally, supported by the diversification of its business model, the third part of CIB, security services, continues to benefit from a good business momentum with new mandates in private capital. With the positive impact of interest rates and increased assets due to market rebound, revenues increased by 1.6%, a solid performance. If I synthesize back to CIB overall, total costs were down 1% year on year, with very positive jaws shy of 14 points for global banking, while cost degrees in global markets again to context of normalization of the activity. All in all, accounting for a very low level of cost of risk, CIB generated a pre-tax income of 1.8 billion euros, a record, and as I mentioned earlier, up 4.7% year on year. In a nutshell, a very efficient CIB model embarked on a strong growth plan with strict discipline, continued market share gains, and favorable positioning, offsetting this quarter the impact of more normalized markets on fake activities. And another record this quarter. If you can now turn your attention to commercial personal banking and services, from slide 25 to 32. What can you see? Well, CPBS performed well with a solid set of results and very positive jaws thanks to the strong performance of commercial and personal banking in the Eurozone and the sustained growth at Arval. In terms of activity, loans were up 3.6% across commercial and personal banking in the Eurozone and specialized businesses. Deposits were almost stable in the eurozone for commercial and personal banking. If we look at private banking, net asset ventures were strong at 5.1 billion euros, confirming our distinctive franchises and favourable client positioning. Moreover, the division continues to focus on its commercial footprint and robust sales, with notably an exclusive partnership with Orange Bank and further customer acquisition at Halo Bank. On payments, a strategic initiative for CPBS, transaction volumes are on a clear growth path with new mandates in 2023 in the acquiring business. If you now look at the P&L, revenues clocked in at 6.8 billion euros, up 3.3%, thanks to margins that held up well, more than well. A very good performance at Erval, also combined with a good resilience at Leasing Solutions. All in all, we saw a good momentum on net interest revenue, notably for commercial and personal banking in the Eurozone. In France, our favourable market positioning, combined with strong franchises, supported a good set of results. Net interest revenue is up 1.3%, with margins that held up well on the back of our positioning, and strong sales and marketing drive, but also contribution of inflation hedges partially offsetting by the increased refinancing cost. If you now go to Belgium, where it increased by 4.2%, thanks to our strong market share, and in Luxembourg by 35%. At BNL also, despite the tough competition on prices, margins held up well on deposits and net interest revenue increased by 6.2%. So this is the net interest revenues. If you look at fees, we continue to get the full benefit of our leading positions on flow businesses and favorable client mix and benefit from the balance between banking fees and financial fees. If we now look at the specialized businesses, revenues were up 5.8% year-on-year. When excluding personal finance, the growth is shy of 17%. Now, based on a pattern you know well, by combining volume growth expansion of finance fleet with higher new car prices, as well as the benefit of high used car prices and new partnerships, Arval and Leasing Solutions saw a sharp increase in revenues of 17%. Looking at Arval, continues and will continue to deliver a very strong growth in the fleet, supporting the development of revenues all the more than new car prices are getting higher. It is anticipated to offset the very gradual effect for Arval of a more normalized but still at a very high level of used car market. In addition, revenue will be further supported by the development of financial margin with increased new car prices. If we turn to personal finance, the transformation is progressing. Furthermore, business-wise, we see an inflection point with higher volumes and higher margins versus Q1 2023, despite continued pressure. Outstanding loans were up 12.4%, increasing notably in the mobility segment, supported by the new partnerships in auto loans that will also drive the structural improvement in the risk profile of PF. Lastly, new digital businesses and personal investors confirmed their role as new client acquisition engines, accompanied by a strong growth in revenues. up 16%. So these were the revenues at CPBS. If you now look at the costs, they were almost stable at 0.3%, reflecting the impact of cost-saving measures as well as the ongoing rationalization of the operational setup that offset the effects of inflation. Hence, very positive Jaws effect of 3 points, sustained by commercial and personal banking at 3.5 points. Similarly, the specialized businesses confirmed their capacity to grow at marginal cost with a significant positive draw effect at 12 points for Arval and Leasing Solutions. Positive draws also for the new digital businesses at 1.1 points. So if we scroll down the P&L of CPBS and we look at the pre-tax income, stable at 2.3 billion euros, up 0.7%. So to sum up, a very solid quarter for CPBS with a robust business drive and the support of the ongoing adjustment in interest rate with net interest revenues holding well. Let's now move to slide 33 to 36. So despite contrasted environments, business momentum for this third division, investment and protection services, was good overall, sustained by net inflows for wealth and asset management, at 6.8 billion euros during the second quarter, especially in Europe and internationally with high net worth clients. If we now look at the P&L, EPS revenues stood at 1.4 billion euros, up 0.3% year-on-year, with strong increase in insurance and wealth management. Indeed, a solid performance in insurance with revenues up 8.7%. Good business drive in France, supporting inflows notably in unit-linked combined with a nice momentum for protection, notably in Latin America. Wealth management also performed well, up 6.6%, boosted by the strong growth in net interest revenues with solid margins and deposit growth. An increase in revenues also for asset management, on the back of net asset inflows and a market performance effect. This increase in asset management has been offset by less favorable base effects an environment for real estate and principal investments who form together one unit. So IPS operating expenses were up 2% year-on-year, driven by business developments and targeted investments. All in all, IPS pre-tax income just came down by 1.5% due to a less favorable environment impacting real estate combined with the base aspect. Let me now conclude our presentations. BNP Paribas 2023 second quarter results confirm a solid intrinsic performance for the group driven by the strength of its diversified model. Let me walk down some elements. First, a distributable income on a fast track at 3.3 billion euros with an EPS growth of 16.8%. Two, a strong trajectory confirmed for 2023 supported by a second tranche of share buyback of 2.5 billion euros to commence in the coming days. Three, a clear and promising ambition to support a carbon neutral economy with a clear and recognized leadership. Four, finally, a tribute to BNP Paribas teams who are strongly mobilized and committed to support more than ever our client needs. So with that, we demonstrated once again that BNP Paribas is uniquely positioned to deliver strong performances, serving clients and the economy in all weather. I thank you very much for your kind attention and am now more than pleased to take your questions.

Ladies and gentlemen, if you would like to ask a question, please press star and 1 on your touchtone telephone. Please lift the handset, ensure the mute function on your telephone is switched off, and that you are in a quiet area to maximize audio quality. We will take as many questions as time permits. Again, please press star and 1 to ask a question. The first question is from Tariq El-Majad of Bank of America.

Hi. Good afternoon, everyone. A couple of questions from my side, please. First, I mean, Lars, it has been now six months since you closed the sale of Bankwest. So I want to ask you to provide us a detailed breakdown of Bankwest. the redeployment of this excess capital coming from Bankwest, but can you give us an indication where should we start to see this capital that you are putting at work feeding through the earnings and profitability and growth? And then the second question is on your return on tangible equity. So you are running now for a few quarters above your 2025 targets of 12%, despite your CT1 ratio being still higher than the target under Basel IV. So are you over-earning somewhere? I mean, you mentioned some record quarters for some areas like Arval and global banking, or should we assume your target is conservative and the current percentage we see now is probably the rain rates? Thank you, Lars.

Tarek, thank you for your questions. If you look at the redeployment of Bank of the West, so basically we have a expressing capital, a gain of around 11 billion euros from Bank of the West, 4 billion of them we are using in the share buyback that is going on this year, and that we will launch very shortly the second wave of. So that's the first thing. So there remains basically 7 billion. That 7 billion, we want to redeploy it organically, bolting on. Again, I'm not going to repeat, but we're not going to buy a bank or whatever. So we're going to bolt on activities. And these things... They happen, you know. As you might have seen, we have closed Cantox, which took a bit of time to work at. The same is true at Personal Finance. You have seen that we have an agreement with the distributor to also step up the volumes. So these are things that happen. And so you cannot imagine that with a magical wand, we do everything at once. It basically takes time and it happens. And you see that we are on track as I gave it, what we see in personal finance, what we see with Cantox and the likes. And so this is what we're doing. And so what are we going to do? Well, as I mentioned, we're not going to do a bank. We're going to do things that is basically that strengthens activities that we have. So we're not going to go into regions where we are not present. We're going to strengthen. We're also going to redeploy it in activities which are very efficient when it comes to capital consumption. So what can that be? That can be insurance activities. That can be markets activities. That can be asset management activities. These are the kind of things that we look for. And again, don't expect that this $7 billion will be redeployed in one go. We really said it's going to be, even if I say $6 billion organic, $1 billion in acquisition, that's going to take time. So it's going to be, let's say, $2 billion every year from now to 2025. And again, if you look at Cantox Reclosed and the personal finance one, we feel we are doing that. And so the share buyback is really on track to make that happen. So that's basically where we stand. And so back to your question of the things we put in motion. So yes, we have guided that we have an objective for EPS, an objective for earnings. You see that we are delivering well on them. And moreover, we basically confirm. So we confirm that The 2013, we confirmed 2025. So all of this, we are well on track, very well on track to basically deliver on those, and we confirmed that. So, Tarek, that will be my two answers to your questions. I don't know if that answers them. Thank you. Tarek, maybe before you just launch the question, I understood, but I missed it. You also had a question on the ROTE.

I thought you avoided it. No, no, no.

Tarek, listen, and it's not only to you, I say it to all. If I don't answer, don't hesitate to repeat. It's just that I missed it. No, on the ROT, what is clear the message is our objective is to really step it up, and the idea is that over the plan, there is this kind of 12% ROT that we want to go for. Now, the only thing is, and you see it going up, if you look at The chart that we have, if you look after the six months, you clearly see it going up. There is just one little thing I have to say. If you look at the ROT after six months, as the calculation of the ROT is regulated in the sense that it takes the formal six months and extends it to the next six months. So it is always typically the six first months are a little bit flattered because in the second half of the year, there is August, there is December, which are typically a bit calmer months. So typically the ROT... as it's calculated, as we are obliged to calculate it, is a little bit flattered. So the 13.6 is a little bit flattered, but if you see the trend, it clearly confirms our objective of more than 12%. Operator, would there be another question?

Sorry, sir. The next question is from Matthew Clark of Mediobanca.

Good afternoon. So three questions, I'm afraid. First one is a boring numbers question on asset management and real estate division. The allocated equity went up by about half a billion last quarter, but the risk-weighted assets didn't go up. I'm just wondering what was behind that, whether there's some deduction or something that's driving that increased segmental equity allocation. Second question is on the personal finance division volumes. It looks like, well, the slides say that there was 8.4% growth on a constant scope in FX versus the first quarter. But I think that doesn't adjust for the Stellantis deal. And somewhere I read that there was 8 billion volume that came in from that. So I just want to understand what was the organic growth trend in the personal finance volumes quarter on quarter and any commentary you have there about whether there's been an inflection yet And then a final question also on personal finance. You gave some targets at the start of the year of $7 billion for Stellantis and $3 billion for Jaguar Land Rover Volumes by 2025. So of that $10 billion, how much has already been delivered in the first half? Thank you.

Matthew, on your first question with respect to capital allocation, there is nothing in particular. This is a bit the modeling that we do, that we evolve, but basically I'll ask the teams if there is something else that you would have spotted, but normally there is nothing of relevance there, but we'll come back. So when you look at the personal finance volumes, so indeed, as you know, what is happening is we are transforming personal finance. So the activities that we have, so if I go back, personal finance in the past we were able to grow maybe one product in a country, and that was fine. So what we now basically see is that when you have one product, which is not really at the core of what we do, we aim to have several kinds of products. So the entities and the locations where we typically operate as such, we are basically stepping out. So that's why we're stepping out of Latin America. That's why we're stepping out of Eastern and Central Europe. And so we refocus the activities basically on the Eurozone, Because in the Eurozone, we can really focus on the kind of collateralized activities. And so the collateralized activities are in particular the mobility and the home improvement ones. And if you look at that, so if you look at personal finance, on one hand, you have the impact of those volumes that we are reducing because or we are selling those activities or we are ramping them down. And then you have the additions. So when you look at the volumes at which they operate, the best proxy, actually, the comparison of the second quarter 2023 is not the comparison a year ago, because since that year ago, you had a pressure on the margins. The better comparison is the first quarter of this year, because intrinsically, the businesses, the trends that you saw are rather the same as what you see, and so you will have a pickup which will be crystallizing. And so if you compare it to a year ago, well, it takes four quarters before you see this. So your best proxy for, let's say, the volumes and what you see is the first quarter. And then Stellantis is indeed the one that you have added. And so, listen, let's be fair. You know, when we gave guidance on what we anticipated for it to be, the $10 billion is basically what we have. Because if you look at the deal that you talked about with Stellantis, Stellantis, it's a deal where these activities gravitate. In the past, they were structured around brands. Today, they are structured around countries. And so there is a restructuring happening of the countries and the brands in which we are. So for the moment, there is a total add-on of eight, but that will go down by one billion as there is activities that we will transfer back. And so this is how you have to see it versus the 10 billion that we anticipate. So, Matthew, that would be my questions. Or did I miss one? No? Those would be my answers, Matthew.

Can I just follow up on the Stellantis? So, basically, if that closed on the 1st of April, that's already at run rate impact already in this quarter in terms of the P&L impact. Is that the right way to think about it?

It's basically, as I mentioned, the run rate, it's roughly that. It's probably... As I said, there is a part of the business that should go away, but yes, you can consider it as a run rate to be added.

And on Jaguar, that will come in over time as you write new business?

Yes, exactly.

Thank you.

The next question is from Flora Bocahot of Jefferies.

Yes, thank you. Good afternoon. The first question asked is on the payout structure. you have raised the payout last year from 50% to 60%. And if I'm correct, I think the mix today is supposed to be X, obviously, and the Bankwest-related distribution, 50% via a cash dividend, 10% via a buyback. But then you trade at a 30% discount to your tangible book value. So actually, it would be super interesting for you to do more buybacks in the mix. So the question is, Why stick to just 10% of buyback in the mix? What's holding you off? Are you considering increasing that buyback proportion while you trade at such a discount to tangible book value? The second question is on the NPL rate and coverage. It's still small numbers, but the NPL formation this quarter seems to have suddenly picked up a bit Q1 versus Q2. So just wondering what's driving that. Is it coming from the consumer finance business? Is it coming from SMEs, any specific sector you want to call here? And then on the NPL coverage side, it's the opposite. You are actually, I think, at an all-time low at 70%. Still a high number, but trying to understand the rationale behind the coverage being so low versus history. when you are, as you say in the slide, very present as a bank, and we are supposed to be coming to a slowdown on the macro. Thank you.

Thank you, Flora. No, you're absolutely right. Your understanding is appropriate when it comes to the 60% of earnings, and then, of course, topped up with the $4 billion of share buyback that we do stemming from the sale of Bank of the West. So when you relate that to the overhang on the share price, now that overhang on the share price for us is basically a European overhang, right? And so that basically means that when we look at BNP Paribas, we are in a position with all the platforms that we have, with all the skills that we have, with all the liquidity that we have, is to redeploy these and have a very solid contribution and shareholder creation. So from that point of view, so we see that an overhang is a EU-related overhang. We are one of the few banks in Europe that have the capabilities to grow and so to create value long-term. So we're not that one trick pony that does one thing when there is an environment that helps. No, we are on the long-term, standing there, by our clients, growing the economy. And so that is what we will continue to do. So that is what we see. And as I said, we see the opportunities to grow here. We see the levers to do, and that is what we will continue to look at. When it comes to the NPLs, the main thing is there are some minor movements that, if you look back, that you can see. But the main thing, if you might find the 70% a bit confusing or whatever it is, it basically stands there that this is just the metric. It's like using leverage ratio and all these kind of things. You just look at metrics. But those metrics, they look at the plain vanilla balance sheet. They don't take anything into account of the quality of the portfolio. And that is basically a 70%. So if you would add and you look at the quality of the underlying, the quality of that, how that is locked in, you would clearly feel comfortable the way I do of that percentage. So far, those would be my answers.

Thank you, Lars. Just to follow up, please, on the payout, the question is not around the level, you know, not the 60%, it's on the mix. Like, why stick to just 10% out of the 50 via a buyback and not more via a buyback?

Sure, Flora, I understand. But, you know, we are diversified in all senses. We are diversified in our businesses. We are also diversified in why people hold our shares. And so that is the balance that we find between the shareholders who have interest and a read on cash versus share buyback. And so that is why we stick to the 50-60 and have topped it up with a $4 billion share buyback.

Understood.

Thank you. The next question is from Julia Mioto of Morgan Stanley.

Hi. Good afternoon, Lars. Two questions from me, please. So the first one, on the Basel IV finalization in the U.S., do you foresee any impact on BNP business in the U.S. or on the competitive landscape within CIB? And then the second question, again, on CIB, but this time more on the outlook for revenues and pipeline. So we are coming off strong years, 22 and before, the revenues were slightly down. Is this a more normalized level, or what do you see going forward? Thank you.

Yes, thank you, Julia. If you look at Basel IV in the U.S., the first thing I have to say, I don't know what and when it will come. I've been hearing now for years that next month it will come, So we will see. Now, the thing is, intrinsically, the main concern I had is that saying I would not want the implementation of Basel lead to a competitive disadvantage between the U.S. and Europe. And so we have been, we had a very strong advocacy versus Europe that whatever Europe would decide, and particularly on everything related to market risks, that it would have to be aligned on the decision that the U.S. is taking. And that, clearly, Europe took it on board. So from that point of view, we understand that Europe will align whatever it would decide around FRTB with what the U.S. is doing. So from that point of view, listen, I don't know if and when something will come out. I have kind of the sentiment... that there will be a level playing field between the two sides of the Atlantic, and that is basically what counts for us. So then when you look on the outlook of CIB, listen, as you have seen, if you take CIB, you take global banking, you have seen that there is a very solid result. So you can imagine that this stems from a pipeline which is solid, then again, With whatever you read and you see, you can imagine that that is the case. And when you look at global markets, it's a bit the same thing, right? Global markets, whatever, I don't know what the ECB has announced today. Oh, look at that, 25 bits. And so given that uncertainty in the macro environment, there will probably be a sustained demand in macro. There will probably be a pickup when it comes to equities. So from that point of view, we remain optimistic. comfortable on the outlook of CIB for the rest of the year, Julian. So those would be my answers.

Thank you. The next question is from Jacques-Henri Goulard of Kepler-Chevreau.

Jacques-Henri, don't be shy.

I apologize, sir. Could you please repeat your question?

Okay, hi. Lars, can you hear me?

Yes, I can hear you loud and clear. Go ahead.

I thought you had censored me for a minute. Three questions. The first one, on your S1 and S2 provisions, I checked the registration document of your N22 and the document you published this morning. It seems that the stock went from 5.6 to 5.2, which implies a consumption of 400 million in H1. So you mentioned 115 million in Q2. That would imply, obviously, whatever, 270, 280 in Q1. I'm surprised to see you use these numbers which are not even very high as a percentage of your stock considering that, as you said, the asset quality picture remains very good. You're still below your 40 basis point target. And actually, intuitively, I would have thought you keep these type of releases for the time when the economy is not going well. So just wanted to know what was going through your mind when you released this provision. That's the first question. The second question, the corporate center restatement is just a little bit weird because when you look at the restatement relative to insurance, you end up with minus 20 million, minus 30 million on a quarterly basis. Was it worth going through all this? just for that small amount and the last question I remember the legendary slide 5 or Q4 2022 you had given the 7.6 billion redeployment of capital but there was one thing which is missing today which was the 2 billion extra net interest income by 2025 do you still confirm that because I can't see it and you know do we still have the bulk of these to go in the remaining time until the end of the plan Thank you.

Jacques-Henri, I would never have silenced your questions. So if I take them one by one, first of all, you know, on the S1 and the S2, these are kind of regulated. I mean, in my younger days, if you had a provisioning called generic and things like that, you could guide in that. Today, in the S1 and S2, it is much more mechanical, and so you need scenarios that lead to that. And so you can imagine, as you know me, I am a conservative CFO, and so we look at these things to provision, and at some point in time, somebody comes along, looks at the scenarios, and looks how it's materializing, and say, hey, maybe it has been a bit too conservative, your view, and so you have to write back some elements. So that is basically what we do. At the same time, you might remember that that I still aim to have some generic provisions. Like, for example, when people were afraid about commercial real estate, we added some generic provisions that basically we don't need. So that's a bit on this. So we remain very conservative. Don't get me wrong. It is just that S1 and S2, basically, they live according to scenarios, and that's what it is. On insurance, man, what can I say? On insurance, IFRS 17 I didn't ask for that basically that is what happens if you see the amount of work that has to be done and the kind of things that it leads to what else can I say that is what it is and that is why as I mentioned we have some of that volatility we moved it into a general account in order to have at least the read on insurance as coherent as possible And then on your $2 billion, what else can I say? I can answer easily. Yes, it is confirmed. I remind you there is a difference. I mean, for those listening to the call, there is a difference on the impact of interest rates going up depending if you are basically in an environment with loans that are priced on a variable base or on a fixed base. So if you are in an environment of variable, you have an impact going up, and then it's basically done. Whereas as we are in an environment where the rates are fixed, the renewal, and so the increase is coming from the renewal of the loans. And so that's why we said, as these are loans like on average more than five years, so the impact will be roughly like 700 million a year. And so by the plan Horizon 25, we said there will be 2 billion. But that's not the end of it. That will continue thereafter. So there is another 2 billion for the plan thereafter, if I can say that. And so if you look at it, you can see the details on page 48 in the book, where we basically mentioned that the net interest revenues in CPBS are up already 7%, and you clearly see how that will be ramping up. So yes, we confirmed the $2 billion, and yes, you see that in the curve that all that is crystallizing. So Jacques-Henri, thank you for your question.

Thank you for your answers, Lars.

The next question is from John Peace of Credit Suisse.

The risk going into the second half of the year, do you think it stays around?

John, John, can you repeat? I didn't hear the beginning of your phrase.

The outlook for the cost of risk as we go into the second half of the year, do you see it remaining around the current levels, or does it trend back to 40 basis points? And what are your thoughts as we go into 2024, given the overlays that you have? And the second question, please, just around the second tranche of the buyback, how quickly do you have in mind that you'll complete that? Thank you.

Thank you, John, for your questions. If we look at the cost of risk, So he clearly said less than 40 basis points. Listen, I don't have a crystal ball, if I can say so. So I don't know. The only thing, why do we feel comfortable that it will be below 40? For several kinds of reasons. So if you look at the segments in which we are, so which are basically the corporates, if you see that the corporates have been, well, whatever you think is ahead of us, is it the stagnation, what have you not? But those corporates have been anticipating this for a long time, and they've been able to adapt themselves. They've been able to adapt themselves on their cost base, on the focus on products and the likes. But that's our clients. So in our clients, we basically don't see that. Moreover, so we have all of those triggers that we see. We don't see any one of those. And on top of that, we do have the collateral. And on top of that, we have anticipated provisioning. So that is why, in total, we feel comfortable. What will it be? John, I don't know. But it would trend to be below 40. Can it be just like all that we would have one day, one file that will make it pick up towards 40? Will it remain like this below 40? So we feel quite comfortable that it will be below 40. Will it be 30? Listen, I don't know. But with whatever we see and in the client base that we have, we are quite comfortable. Now, on the share buyback, On the share buyback, the thing is, listen, initially we were planning or we assumed to get the approval by the ECB by end of August. You know, technically the ECB has three months, and today with the new regulation they have four months. So we are pleased that apparently our file is easy to read and that we got it earlier. So we will be able to launch it earlier, so basically next week. And so, of course, we launch it as fast as we can. But at the same time, we don't want to perturb the market. So the volumes that we do on a given day, we don't want it to perturb the share price. So it will be, I don't know what, 20% of the daily volumes. But as we started, as we will start earlier, I guess, well, whatever, you know, I'm a conservative CFO, you know, it should be done by December. That's a bit what we see.

Great. Thank you.

The next question is from Amit Gol of Barclays.

Hi, thank you. I've got three questions. The first one just on distributable income. So it looks like a strong performance so far. For 2023, you should be able to achieve and maybe beat the amount that you've stated. Just curious then into 2024, you know, does that give you kind of some leeway versus the kind of 9% net income kind of CAGR, or do you see that kind of as a minimum per year in terms of growth? The second, in terms of the businesses, I guess IPS is one which seems to have had a slightly slower start versus the kind of targets for growth. Just curious what your confidence is in the ability for those businesses to achieve the target and what gives you confidence. And then thirdly, just coming back to the redeployment of proceeds, obviously I heard you on the first question in terms of the areas that you're looking to reinvest into. I'm just kind of curious, as you see the marketplace developing, whether you're seeing more or less opportunities in terms of the timing of that redeployment, whether you think it's potentially going to be a bit more near-dated or a bit further out, or essentially it's a bit too difficult to say at this stage. Thank you.

Thank you. Listen, if we look at the distributable concept, you know, this is something we will only use basically this year. And why? It's because it's a pivotal year. It's a year, it's pivotal for all kinds of reasons. There are these IFRS rules that changed, and then on top of that, it's the last year of the contribution to the Single Resolution Fund. And so that's why we basically said, listen, all those elements that are not really as a base going forward, so it's basically the breaking of the TLTRO there is this single resolution fund. And so we basically say we take that out. And so if you take that out, what remains is basically a good basis. It's more than a good basis. As I said, it's already more than compensated for Bank of the West. And so that is the base going forward, and on which we say our bottom line will grow 9% a year, and the earnings per share related to that will grow 12%. So that's basically what you see, and it should be a readable basis comparing both to 2022 and being the base for 2024 and beyond. So that's why we do it, but we will only do it once. After that, we fall back in the normal growth. Then when you look at IPS, there are several things. First of all, particularly if you look at IPS in, for example, real estate, on top of that, it's a bit skewed rolling from 2022 and 2023 because 2022 had a high base in volumes, And with what is happening now, sees a lower base. So that's a bit the tilting that you see in one year that has basically two effects. Now, moreover, you should not forget that IPS is that engine that basically has the technical skills in product and distributes them not only through PNP Paribas kind of distribution channels, but also through other channels. So it's one that really has a lever for growth that is over and beyond what we have within the bank. And what you have seen is that the agreements that we keep on signing with partnerships, like what we have renewed, for example, with Louisa in Brazil and in the likes. So it is basically something that really is really a lever for growth consuming little capital. And so that is why we are very confident that it is a core growth engine going forward. And then there is this point 22, 23 on real estate that I mentioned. And then on the redeployment, Listen, we feel comfortable in the kind of thing, again, I don't know what you have in an outlook on your economy, but these things, in particularly the 20 basis points of redeployment on bolt-on or on technology, listen, intrinsically, this could go fast. If there is some kind of an uncertainty in the equity markets, well, that is something that could lead us to come to a swift agreement going forward. Those would be my answers.

Got it. Thank you. Just to come back just on that point on distributable income, and obviously I know that we're going to change the definition and the base, but should I expect the capital return capacity to increase by that kind of 9% at a minimum from whatever you report this year? Or if you do overachieve this year, does that reduce what you would need to or look to have to do next year?

Come on, man. Listen, we basically said that we gave a CAGR growth of 9%. So that's basically how it means. And it's more than 9% CAGR. That is what we said. And so it depends. It depends. I mean, technically, if there is a structural increase that we see, then yes, that structural growth will be carried into the years thereafter. So that's what So basically, that's yours to take. So we said CAGR of more than 9%. So whatever growth comes in the next year, it's locked in for the next year. So that's basically what we said. And I just want to quickly come back to your 20 basis points that I mentioned that could go fast in the bolting on. And let's be sure, I mean, that thing of saying out of the 7 billion, there is like 1 billion that is bolt-on and 6 is organic. Also, that could shift. It could be that there are more opportunities for bolt-ons than others. But at this stage, we feel comfortable that that redeployment will be there and therefore help to strengthen the more than 9% CAGR.

Got it. Thank you. That's very helpful.

The next question is from Martin Ames of UBS.

Yes. Thank you, Lars, for the presentation, and thank you for taking my questions. I have three of them, please. Two fairly quick ones, I hope. First one is NII decline in Belgium. Could you give us a bit more color on this? What's been driving that? That would be super helpful. Second one on corporate lending and global banking loan growth or decline of the growth, actually. When do you have a sense that this could be turning? Is this a second half event or this could go on for a little bit longer?

Can you rephrase this question? I'm not sure I fully grasped. Could you rephrase your second question?

Yes, absolutely. So in the global banking business, I think the outstanding loan balances have been declining now for the last two, three quarters. I'm just wondering if you have a sense when this dynamics could stop and perhaps reverse the outlook on the loan growth there. And the third question would be on IPS and the asset gathering businesses broadly. And just coming back to the previous question, could you give us a sense what sort of profiles, geographies would be in scope for such bolt-on deals perhaps in the asset gathering space? Are there any gaps specifically that you would aim to fill? Or are there certain areas where you think you could benefit from significantly more scale? That will be the third one. Thank you.

Thank you for your questions. Listen, if we look at Belgium and the net interest revenues, let's not forget, there is a reason why these things are called net interest revenues. So that means you have the plain vanilla interest revenues in there, but you have also the revenues stemming from the specialized kind of businesses which are in there. And so basically that is... what drives a bit the difference. So what you have seen is not a peak in the kind of recurrent business. It was just a lift due to the specialized businesses which are lodged in Belgium. So from that point of view, there is no concern. When you look at global banking and the loan balances, basically that is music to my ears. So one of the key things that we can do and that we want to do and that Europe wants us to do is originate to distribute. If you look at it, Europe basically considers that there is a lot of investing that has to go on with respect to sustainability, with respect to energy, with respect to bringing back on board chip making and the likes. And so that needs a lot of money. Europe clearly said that they don't want to go Japanese. That means it's not Europe, the nations that are going to fund it, it's going to be the banks. But the banks, they are limited to grow their balance sheet. So the solution is what they've been doing in the U.S. for decades. It's originate to distribute. And this is something that we at BNP Paribas are very well positioned at, because we know the clients, so we know how the underwriting goes, and we know the markets, so we can basically place them into the market. So that is what we do, and so that you have observed that, that's music to my ears. And then on your third question, on IPS and the geographic scope. So there's two things, so to say. On one hand... It is, we want to find, if you look at, first of all, our own distribution channels. So if you look at our own distribution channels, the kind of things we would like to strengthen if in one country or another, maybe there is a product or some products that we could add, and particularly in the non-life area. So that could be something. That's one lever that we could grow it. The other one could be that it is by growing through a, through the partners that we are having, and therefore through which we can then distribute those products. So it could be that there is a phone manufacturer that basically says, hey, I want to embed in a phone being sold an insurance. That is then something. So those are the two things where we can look at to grow. On one hand, to some products, depending a bit on the channels that we have, and on the other hand, by adding products So that is basically what we are looking at.

Perfect. Thank you very much.

The next question is from Anke Ringen of the Royal Bank of Canada.

Yeah, thank you very much for taking my question. The first one is on the global banking division and the strong performance here. Just wonder how much has been helped by the benefit of higher rates, but now as the pass-through rates increased, that benefit should be coming down. And how do you expect to offset this? And I saw a headline you mentioned on Bloomberg that you see a pickup in lending to corporates, and I was quite surprised given the macro environment. So just wonder if you can give a bit more color here. And then on the costs into the second half, I mean, I guess you talk about organic investments. Could we expect you potentially stepping up some of these organic investments, given how you're running on JAWS and on the Aoi, given that's part of your investment plan?

Can you rephrase this question? I'm not sure I grasped it.

Yeah, so the question is with respect to cost. And organic investments or like investing into the business is obviously part of your plan. And I just wonder if we should see, could expect that these investments will be increasing in the second half, given how well you're doing on cost control and your return. And also with respect to the $600 million of cost savings, how much are already in the run right in the first half? Thank you very much.

Anke, thank you for your questions. So if you look at global banking, global banking, one of the things that you see is that intrinsically we are stepping up our market share, right? You can see in the charts that we have in the slides that we have very leading positions in many domains, and that's basically what we do. So that is something where we keep on stepping that up. Now, of course, there is a somewhat on transaction banking, it is somewhat interest-related, but intrinsically on global banking, both sides of the balance sheet are working on a markup, not on an asset and liability mismatch. So the main drive for global banking is basically the growth and the market share gains that we grab. So that's on global banking. If you take your loans, I read your question by a statistic that the ECB has published. I think that's what it is. So the ECB basically published that lending is going down. And so indeed, if you look at what you see with us, they're basically going up. Why? Again, I mean, you cannot consider BNP Paribas as being that average European kind of thing. We are in specific segments with clients that we know well, that we make sure that we have the collateralized and so forth. And so that is why we are able to basically step up the investments and the financing needs that we see for our clients. And then when it comes to your organic investments, listen, the cost, one of the reasons is Why I intrinsically prefer that organic growth and organic investment is the best way is because we have our platforms. So if I want to step up a product towards a client in Germany, I don't have to open a branch with all the fixed costs that go around it. It's just a platform that I have, and I have the related organic marginal costs that go with it. So maybe I will have to add a banker overall for those kind of volumes. So that is basically... what we continue to do. And on the overall reduction in cost that we're doing, as I mentioned, over and above the things that we see, we believe that indeed we can take it even further. If you look at it on one hand, we'll have to step it up a bit to make sure that we optimize in order to fight the inflation, whatever the inflation will be. But we see also the levers. So over and above this combining of sharing of resources, the optimizing of the buildings, the optimizing of that, there is basically more to come. If you look at, for example, how we use technologies, if I think of artificial intelligence within our internal processing, this is something where you really can further step up. And that's what we're doing. That's why we mentioned that already in our plan by 2025, we have 500 million of bottom-line improvement that is stemming from these kind of things. And the way it is going... that could even be further. So that's basically what we go for. So it's a rather linear ramp up quarter after quarter that you could pencil in if that's what you want. So Anke, of the Royal Bank, those would be my answers.

Thank you.

One moment for the next question. The next question is from Stefan Stallman of Autonomous Research.

Hi, Lars. Thanks for taking my questions. I have two, please. The first is on these inflation hedges that you mentioned in French retail, I guess. I assume that's related to Livret A rates or is there any other context? And maybe you can explain a bit about how this hedge works and what the notional is and the payoffs roughly. That would be interesting. And I also wonder whether the value of that hedge, if it is indeed related to Livret A, has been somehow upset by the decision not to increase LIVREA rates in August. And the second question relates to liquidity. You have this very helpful slide 84, where you compare your HQLA and your immediately available liquidity reserves. And in 2020 and 2021, they were basically the same amount, very similar. But since then, HQLA is down by about 10% and the liquidity reserves are up by 5%. And I was wondering what mechanism explains this divergence. Thank you.

Stéphane, thank you for your questions. The magical mystery that is happening on this is basically the TLTRO. Let's not forget that the TLTRO was basically collateralized liquidity. And so as the TLTRO has been basically paid back, that is basically the shifting from one to the other. With respect to your inflation hedges, there is not much more that I can say than that indeed it was linked to those. And so that is basically now tapering off. So we just wanted to say you have that effect. That effect will basically come to an end. And that's all we can say about it.

Right, so the hedge is running out, basically. We will not see something like that in the coming quarters.

Yeah, so maybe to be clear, Stefan, in the end, for us, we wanted to mitigate the other effect, and that's basically all. So that is why you will not see a pickup. You will just see basically that effect being ironed out. So that's all. There is nothing, no boost or whatever. It's just a thing which is ironed out, and that's basically what it stops. So there is nothing more to see into it.

Okay. Thank you, Lars.

The next question, sir, is from Chris Hallam of Goldman Sachs.

Yeah, good afternoon. So I've just got one question left, and it's a bit of a follow-up to Julia's question earlier on Basel IV. You mentioned you're waiting and waiting to see what the final requirements actually look like, but you expect them to be harmonized on a transatlantic basis. Are there any capital allocation decisions which are effectively on hold, pending you seeing those final requirements, i.e., business lines where you're holding back on putting additional capital to work and trying to grow the business because of that regulatory uncertainty?

Oh, Chris, we would never do that. So as you've seen, we're basically firing on all cylinders, helping our clients. And so I feel comfortable, honestly, for having spoken myself to the European Commission, that they really want to align these things. That's basically what counts. So no, we're not holding back. We'll see how it lands. We know that the overall impact will be around 8%, and that's basically it. So there is no concern on that. We're not holding back. and so we'll see how it lands after all. And the one thing we also see on the timing, right? Like Europe is still saying that it's going to be 25. At the speed it's going at the U.S., it could be that it basically becomes 26. So it is not a concern. We keep on firing on all cylinders. We will see how it lands. I'm comfortable that it will be equal on both sides of the Atlantic, and that's what counts. So no holding back.

Okay, thanks.

The next participant for a question is Delphine Lee of JP Morgan.

Yes, good afternoon. Thank you for taking my question. I've got really just two left. On the BNL, I'm just wondering, because we're not seeing much pickup in terms of the NII revenues compared to peers, I'm just wondering if you could give us like maybe an explanation for that, you know, is that because you have more fixed rate loans or is the ELM different? If you just give us, please give us some color, that would be very helpful. My second question is on the corporate center. Is it possible to get a bit of guidance on the revenues and the costs? Because they do tend to be quite volatile on certain items. So, yes, I mean, any... Any help would be much appreciated. Thank you.

Thank you. I take it you like our results, but independent of that, if you look at BNL, listen, the net interest income, we have been sharing this now for quarters, right? I mean, we have applied fixed rates, and so that is why this is the thing that you see. And as you know, it's a whole story. If you are in variable rates, yes, the pickup is faster, but probably the cost of risk will be higher. So for us, this is the approach that we have. And on the corporate center, also there, it's relatively easy. If you take out the exceptionals that we mentioned, basically the top line is zero. So those would be my two answers, Delphine.

Thank you. And on the cost side of it for the corporate center?

At the cost side, we typically run at $100 million a quarter in costs, which are the so-called shareholder costs that we have. Thank you.

Thanks so much. The next question is from Pierre Cheveville of CMCIC Market Solutions.

Yes, good afternoon, Lars. A follow-up question from the question of Delphine regarding the corporate center. Because for the first time you mentioned on slide 70 a favorable effect regarding rates and change in the revenues from the corporate center. So I'm quite surprised that you say that revenues except exceptional item is zero because this quarter it doesn't seem to be zero thanks to the remuneration of maybe free capital, let's say 4.3 billion euros, which is capital allocated to corporate center. And a quick calculation, let me think that we are around 150 million euros in this quarter. And I wanted to know if it's an exceptional movement here or if we have to consider that we will have this favorable effect on the coming quarters, and is it part of the 2 billion euros of interest rate increase that you mentioned in your strategic plan? My second question relates to the cost of risk in Spain in personal finance business. I was quite surprised to see that it has significantly decreased, and I don't see why in Spain the situation is improving like that. And my last question would be, do you see any deterioration in the combined ratio regarding your creditor insurance franchise in the world, considering the global economics that we experience nowadays? Thank you very much. Thank you, Pierre.

Listen, if you look at the corporate center, I know I trusted that you've seen the great results in the businesses. And therefore, the corporate results, as I mentioned, the corporate center, if you take out the exceptions that we mentioned, the idea is to be at zero. Now, it cannot always be at zero. It can be a bit higher. It can be a bit lower. For example, interesting accounting facts like DVA is in there. Now, last time I've been able to project DVA, I've given up, yeah? It's something that goes up and down a bit. And here... it's a bit favorable. So if you look at DVA, if you look at the yields on some of the holdings that we have in there, they are favorable. But don't count on it. It is not part of the $2 billion. The $2 billion is business.

I was not talking about DVA, Lars. I'm sorry, but I was not talking about DVA. DVA is insignificant. And I was talking about the difference between the consensus and the reported revenues. And most of these differences come from corporate centers.

Pierre, if you look at the consensus, if you look at the businesses, it is coming from there. So at the corporate center, there is a bit of positive, and it can be any quarter, but it is not relevant. So if you want, put it to zero. That's basically what I do, and that's basically it. The same is true on cost of risk in personal finance. There is nothing specific. This is basically the run of the mill. And when you look at the combined ratio, the thing is, again, If you look at the combined ratio, and as you know, with insurance, if you see kind of the areas where we are and what you see, if you take Latin America and these kind of activities, they are basically, if you look at the kind of elements that are underwritten and that you see, it's basically fine. So again, we are not just average of what you see within the world. If you look at the channels through which we distribute, therefore the products and the clients we go to, we feel comfortable that these ratios hold at the stage where they are. So those would be my three answers, Pierre.

Okay, thank you.

The final question is from Kiri Vijayara of HSBC.

Hi, good afternoon, Lars. Thanks for taking my questions. A couple from my side. So firstly, on the financing volume in Arval growing quite nicely, at 9.5%, even though when I look at industry-wide new vehicle deliveries, they probably haven't normalized this yet. So firstly, could the fleet growth accelerate from here? And I wonder, are you picking up market share as two of your biggest leasing competitors are busy merging with each other, in which case there's maybe a bit more market share gains to be had there as their integration is underway. And then secondly, turning to your group deposit number, I know you said you benefited from flight to quality during the market turmoil back in March, April. Just wanted to, you know, is that reversed at all? Because your group deposit base did shrink quarter on quarter. It slipped below $1 trillion. I know it's a fairly minor contraction in percentage terms, but I just wondered where you're seeing deposit outflows during the quarter. So just some color there on your deposit flows, please. Thank you.

Listen, if we take Arval. So overall, what you see in the pickup is that indeed there are three levers in basically the revenues, right? And so next to the financing, there is also the services that we provide. And so all that is ongoing. And when you look at the financing, yeah, the financing, what do you see? So indeed, the cars that are delivered is basically picking up. And another interesting topic is what you see is the value of the cars, the new production, is basically higher. So there is a shift into electrical cars and the like. So from that, on the financing part, you see a pickup in cars, and you see a pickup in the unit price of the car to be financed. So that's basically what you see. When it comes to market share, listen, I don't have a view, but you can imagine... when things are merging that some counterparties are now exposed to one, which is too high, and therefore that part of the growth that we see is stemming from that. But I have no specific numbers on that. And when it comes to deposits, they basically, if you look at deposits as a whole, and I hope that like a trillion in deposits is fine, And deposits, as we are a diversified bank, you have to look at it in segments. And so if you look at the segments that are, let's say, related to individuals, that are related to corporates, those deposits are basically up. So where does that little drop that you mentioned come from? It basically is stemming from security services. And security services, that's not even individuals, that's not even corporates, that's institutionals. So that's basically happening, and so they are basically redeploying it in other channels. So that's it. It's basically, if you look at the underlying, there is basically nothing moving. So, Kerry, those would be my two answers.

Great. Thanks very much, Lars.

Mr. Messner, would you like to make any closing remarks, sir?

Yes. I want to, first of all, thank you for your interest, and I take it that you have seen that in 2023 second quarter that those results confirm a solid and intrinsic performance of the group, and that you've seen that it yields a 10% pickup, that it yields an EPS of 17%, and that we will launch in the coming days the second wave of our share buyback. With this, I thank you very much and wish you a great day.

Thank you, sir. Ladies and gentlemen, this concludes the call for BNP PottyBuzz second quarter 2023 results. Thank you for participating. You may now disconnect.