Societe Generle Ord

Thank you very much. Good morning to all of you. Thanks for attending this conference call. As usual, Claire Dumas, our CFO, and myself will go through as briefly as possible our presentation, and then all our management team will answer your questions. with, as you remember, this, if I may say, nice discipline to try to stick, at least to start with, with two questions per people to let everyone asking a question. Let's go through the presentation and start with the first slide where you have actually a summary of this very dynamic first quarter. As now foreclosed to three years in a row, We are presenting a very strong set of quarterly results above expectations. It is based on robust business performances, solid business revenues in particular, and of course with an even higher figure if you take into account the IFRS 17 adjustment, it's an equivalent of 200 million euros revenues versus the previous way to report. And apart from French networks, we have across the board very good performances, in particular regarding Boursorama, ALD, international retail, as well as global banking and investor solutions. Regarding the French networks, we will go through the detail. As you have seen, we've all the large players in this market. There are specificities in the French market, and it means that we will have temporarily for this year, till the beginning of next year, a decrease of net interest margin, but with a rebound in 2024, and so we are confident with the trajectory of our French retail business. At group level, you can see also the strong and disciplined monitoring of our costs. This is not something also which just relates to this quarter, a permanent effort. Cost of risk is very low, as you have seen, while we maintain a very prudent provision. We will go through the detail. And overall, we present a very robust balance sheet in all the dimensions, credit quality, capital level, and liquidity ratios. you might have seen that we can confirm the approval by the European Central Bank of our share buyback, the €440 million share buyback, which is part of the 2022 distribution. I just would like to highlight that beyond these results, there is, of course, further very important milestones in our strategic projects, which have been completed or are about to be completed in the very coming few days. Regarding our French networks, the merger and the creation of our new SG bank, we had a very first successful IT migration in March. The second one, which will complete their job in terms of the creation of the new bank, will take place this weekend, actually on the 13th and 14th of May. and will allow then all the teams and the management to concentrate on the implementation of the new business model and, of course, the extraction of the synergy, both in terms of revenues and in terms of costs. Regarding Borsorama, we are exactly in line with the trajectory we have presented. We've, in the first quarter of 2023, a break-even, while still conquering a strong number of new clients, close to 300,000, in the first quarter. Third, we have scheduled an extraordinary general meeting for ALD on the 22nd of May for the closing of the acquisition of LEAF plan, and eventually, regarding Ben Stein, we signed the acquisition agreement. So a very busy, but I would say successful quarter, also from a strategic point of view. Now I turn the floor to Claire, who will enter into more details in the figures.

Thank you, Frédéric. So as previously highlighted, the group delivered in the first quarter a robust operating performance with an underlying gross operating income at €2.5 billion into one. This performance has been notably driven by overall solid revenues, which are slightly down at group level, but up 0.3% for the businesses, at constant exchange rate and perimeter and compared to a very high Q1 last year. They are even 16% higher than Q1 2021 on a pro forma basis under IFRS 4. At the same time, underlying costs remained under control with an increase of 1.3% Overall, the underlying cost-income ratio, including SRS posted in Q1, is at 60.5%. Moving on to the next slide, 6. The cost of risk remains low across businesses in Q1. At group level, it stands on an average at 13 basis points. Once again, it illustrates the quality of our assets and our strict and prudent risk management policies. We still do not see any material deterioration of our portfolio. The NPR ratio is stable at 2.8% at the end of March, and the growth growth rate is still around 49%. On the back of this low quarterly level, and given the quality of our credit portfolio, we now expect the cost of risk to be below 30 basis points. Let's turn to the next page, slide 7. As illustrated in the chart on the left-hand side, and in line with previous comments, defaults remained low in the first quarter, in absolute terms at €206 million, or 14 basis points. It's also true in relative terms compared to previous years, both in nominal terms and in basis points, despite the tougher environment. At the same time, we maintained a prudent provisioning policy in the quarter, by keeping stable the precautionary provisions of Stage 1 and 2 assets in Q1. At the end of March, the total outstanding in Stage 1 and 2 provisions is stable and remains close to 3.8 billion euros. Let's now have a look on our corporate portfolio, which accounts for around 34% of the group's total exposure at defaults. As you can see on slide 8, it's highly diversified in terms of sectorial exposure. The concentration risk is low, in line with our risk management policy. This is particularly true for sectors that have focused attention in recent weeks. For instance, the exposure to U.S. regional banks is very low, with a total exposure at default below 100 million dollars. The exposure to commercial real estate is limited to 1.9% of the group's EAD, out of a total exposure at default of 3.2% on the corporate real estate sector. The commercial real estate portfolio is sound. It's diversified in terms of asset classes and geographies, mainly geared towards Western Europe at 79% and largely in France. It's also managed from a risk perspective. In particular, the actual LTV of this portfolio stands at around 50% on the back of current underlying policy, based on a maximum LTV of 65% at origination. The exposure to offices or assets in the U.S. are both limited. Around 50% of the exposure is with investment-grade counterparties, and the stage 3 exposure is around 1.3%. On leverage finance, as disclosed last quarter, we have always maintained a cautious approach and applied strict risk management. In line with this approach, the exposure on LBO is low and remains limited at around 5 billion euros, which represents around 0.4% of the total group's exposure at default. Finally, on the ration of share portfolio, the exposure further decreased by 200 million euros in Q1, to reach €1.6 billion at the end of March, thanks to a continuous flow of repayments. We have adjusted downwards the net exposure at risk, which is now estimated below €0.5 billion. It's largely covered by a stock of provision of around €0.4 billion. Let's now turn to Capital Slide 9. At the end of March, the group had a very solid core tier 1 ratio of 13.5%, which is 410 basis points above the MDA. The fully loaded ratio increased by 10 basis points in Q1 compared to Q4 last year. This increase is a direct result of a solid organic capital generation of 14 basis points in Q1, plus provision for distribution. The impact of the regulatory adjustment on the models is limited to four basis points this quarter. Last, the other items have a net negative impact of one basis point. It notably includes a positive impact of eight basis points linked to the implementation of IFRS 17 and IFRS 9 on the entrance activities and, on the contrary, a negative impact linked to the deduction of treasury shares in line with EDA guidelines. For the capital ratios, they are also all comparatively above requirements. Moving on to liquidity, slide 10. As illustrated in the chart, slide 10, the standard balance sheet of the group is very solid, with an excess of long-term resources, high deposit base, and liquidity reserves, and a limited reliance on short-term funding. In Q1, the robustness of the liquidity profile has even been further strengthened with the rise of the liquidity reserves, which represent almost 30% of our selling balance sheet, and an increase by 0.7% of the deficit base at 598 billion euros. The deposit base of the group is sound, highly diversified, and granular. It's largely composed of deposits in our retail activities for more than 60% and of business-driven deposits made by corporates. We treat the group as a very close, long-term relationship. It's also important to note that more than 60% of the deposits made by individuals are insured. Overall, the loan-to-deposit ratio stands at 84% at group level. Last, it's useful to remind that, in line with our policy, assets in dollars are fully funded by resources in dollars. We have actually excess resources in dollars, which are deposited at the same. We indeed benefit from highly diversified and stable resources in USD, with very limited reliance on money market funds. Let's now have a look at the liquidity reserves and the morale ratio, slide 11. As illustrated in the chart, the liquidity reserves are very high and have steadily increased over the last quarter. They represent around 2.5 times the amount of short-term and long-term wholesale debts maturing within the next 12 months. They are largely composed of excess cash deposited at central banks, mostly at the ECB and the Fed. On top of that, we have around 56 billion euros of HQLA assets eligible to the LCR ratio. They are mostly composed of highly rated sovereign dates, which are edged against interest rate risk with FAS. Overall, the LPL remains at a very high level and has further increased since the end of 2022 from 141% to 171% at a level well above our minimum steering flow. Regarding the Mahal ratio, which is another important aspect for European banks and depositors, It stands at 34.3% in terms of LWE, with a total outstanding of €124 billion of eligible debts. As for the other ratios, it's well above requirements, with notably AT1 and TA2 buckets comfortably above minimum requested levels. Last, note that the Vanilla Long-Term 2023 funding program is well advanced, above 70%. I will not comment slide 12. Let's now look at the business performance in the France Networks and Private Banking, slide 14. On the credit side, total loan outstanding is flat in Q1 versus last year, with still mixed trends between retail and corporate. With corporate, the activity remains constructive. Loans excluding PGE are up, plus 4.5% versus last year, driven by both medium long-term credit and treasury loans. On state-granted loans, we continue to have normal repayments, and the amount has gone down from around €18 million at the end of 2020 to €12 billion currently. Regarding loans to individuals, we have maintained a voluntary selective approach in production to limit the impact of the usury rate, which is translating into a decrease in production on a yearly basis. Despite this drop in production, home loan outstandings are at this stage still stable on a yearly basis. On the deposit side, total outstanding is up 1% compared to last year. The deposit base is diversified and solid with both households and corporates, which have, for the latter, started to shift part of their site deposits to term deposits or to interest-bearing on or off-balance sheet products. On savings, we experienced overall resilient AUMs. Life insurance outstanding are flat, with gross inflows amounting to 3.3 billion euros. Private banking assets under management, excluding the formal extra business, was up 2%, with net inflows of 2.5 billion euros. Finally, Premier and PNC were up 7% in the quarter, and personal protection continues to rise by 3% versus last year. Moving on to Borsorama, slide 15. Borsorama has reinforced its leading position in France in the online banking, with 297,000 new clients during the quarter to reach a total of 4.9 million clients at the end of March. which represents a 34% increase compared to last year. It's composed of high-quality client base, which actively uses Bursorama on tracking basis and has primary banks for more than 50% of them. With regard to customer relation, it's important to highlight that Bursorama is number one in customer satisfaction, with the highest net promoter score of plus 36%. On client equipment and monetization, Boursorama continues to make strong progress in line with the evolution of its client base. Loan outstanding are up by 7%, that is Q1 last year. Deposits and financial savings increased significantly by 39% to €51 billion. Additionally, we still observe dynamic day-to-day banking operations with a 48% growth in payments and withdrawals, that is last year. This strong growth in outstanding is starting to bear fruit on the financial front in line with our expectations. Indeed, as mentioned in slide 16, Bostorama is breakeven in Q1 while maintaining a solid new client acquisition rhythm. This is firstly due to a strong increase in revenues in Q1, which has been multiplied by 1.6 times compared to last year, excluding new client and boarding costs. Bostorama fully benefits from its enlarged client base and fast-growing deposits and savings base in a positive rate environment. At the same time, the acquisition cost per client and the cost to serve have continued to decrease consistently with the high scalability of the model. As an illustration, the number of employees have increased by less than 50 in total since January 2022, while at the same time, Postorama has gained more than 1.8 million new clients. Let's now focus on the French retail banking net interest margin approach, slide 17. As indicated last quarter, 2023 will be a year of transition with a temporary decrease in net interest margins before a rebound expected in 2024. First, the net interest margin will be negatively impacted in 2023 by the end of the benefit of the TLKRO, with a negative impact of about minus €300 million compared to last year. It will also suffer from the specificities of the French market. Hence, depending on the LIREA rate devolution, regulated savings weighed up to around 400 million euros this year, as we have a sensitivity of around minus 50 million euros for each plus 25 basis point rate increase. In addition, the usury rate has impacted and continues to impact loan production in terms of both volume and margin effects. At the same time, will not benefit from positive rates on deposits before 2024 due to a short-term hedging policy of the net interest margin put in place until early 2022 in an environment of negative or very low interest rates. Based on forward rates at the end of March 2023 and an assumption of a three-month variable of 3.75% Q3, the net interest margin is expected to be down by around minus 15% to minus 20% in 2023 versus 2022, before mechanically rebounding in 2024 at a level comparable to 2022 with the extinction of the hedges and to further improve in 2025. Note that this projection is based on assumptions on a balance sheet which are consistent with the current economic environment, i.e., first, a slight erosion of loan and deposit outstanding despite unexpected GDP growth, and second, a continued shift toward interest-bearing products of part of the deposit space. Let's now come back to the quarterly numbers, slide 18. In terms of P&L, the French retail banking activities generated a net profit of €138 million in Q1, despite the pressure on the NIM, which will last until mid-2024. The total revenues, excluding PEL-PEN, are down 9.5% versus last year. Regarding costs, they remained under control and well below inflation. The decrease by 2% on reported basis compared to last year and are flat on an underlying basis. But last but not least, the cost of risk remains low at 14 basis points. Overall, the underlying RO&E comes to 7.5% into 1. On international retail banking, slide 19, commercial dynamics continue to be well-oriented across regions. In Europe, loan outstandings are up 8% and deposits increased by 2% on a yearly basis. On deposits, total outstanding strongly increased by almost 7% compared to December last year. In Africa, the economic environment has further improved, which has contributed to maintaining good momentum across geographies. Overall, loans and deposits both grew by 5% versus Q1 last year. Driven by these solid commercial performances, revenues increased by nearly 7% compared to last year at constant exchange rates and perimeters. This results from both strong growth in Africa with a 15% increase in revenues and a continued solid performance in Europe with a 19% rise in Romania and a still high net interest margin in Czech Republic. Overall, our international division posts once again a very satisfactory performance this quarter, with an underlying RO&E at 18%. On insurance and financial services, slide 20, the performance remains strong, with an underlying RO&E at 28%. On insurance, the commercial trends are silly. Life insurance growth inflows amounting to 3.6 billion euros in Q1, notably thanks to a dynamic trend in France with a 2% rise versus Q1 last year. Total life insurance outstanding stands at 133 billion euros at the end of the quarter, with a further increase in unit links at 37%. Our protection premium continues to increase on predictions Premium continued to increase, plus 4% versus Q1 last year, driven by a continued increase in penetration rates, and still very good dynamic in P&C Premier, which are up by 7% versus Q1 last year. Overall, revenues generated by the insurance division rise by 51% in Q1, under the new IFRS 70 norm, which is applied for the first time this quarter. In addition to this solid commercial performance, this strong increase also results from a volatile effect linked to IFRS 17 that led us, due to the mark-to-market of certain contracts, to restate the Q1 2022 revenue base by around minus 40 million euros before reversing it into two. It's an illustration of the volatility of revenues that IFRS 17 could generate going forwards. For financial services, revenues increased by 26% in Q1, thanks to a 30% rise for ALD, which benefited of both a solid growth of the funding fees by more than 3% and a continued strong contribution of used car sales and positive impact of depreciation adjustments. To sum up slide 21, IBFS delivered another strong quarter with an underlying revenue of 22.7%. Revenues increased by 15% at constant exchange rates in perimeter versus Q1 last year, allowing for positive jobs despite the impact of the preparation costs borne by ALD for the acquisition of Lisplan. Moreover, as for the rest of the group, cost of risk remained low in Q1 at 27 basis points Turning to GMRAs, total revenues are slightly down by minus 1.7%, like 2022. Starting with global markets, it was once again an excellent quarter, with total revenues exceeding 1.7 million euros, a level comparable to a record Q1 last year. This is now almost the third consecutive year of strong performance, the 11th quarter in a row precisely. It further demonstrates the soundness of our setup and risk management, the strength of our franchisees, and our ability to navigate different environments. In detail, for 16 terms, this is an outstanding performance with a plus with an 890 million euro contribution, up by 16% as of Q1 last year, and 54% in comparison to Q4. The VIG platform keeps benefiting from the conducing rates and forex environment. Equity activities performed quite well in Q1, despite the context of lower volumes and volatility. Revenues are down 18% on a yearly basis compared with a record high in Q1 last year. If we compare to Q4, they are up 29%. Security services was up 12%, benefiting notably from the re-evaluation of our 14-year clear. On financing and advisory, slide 23, revenues are up 5% versus Q1 last year at 827 million euros. Global banking and advisory realized once again an excellent performance in Q1 with revenues close to historical highs. Momentum remained strong in asset finance across all asset classes, especially in aircraft industry. The performance was also robust in investment banking with a rebound in revenues notably driven by DCN and TMC finance. Last, the level of activity was overall good in asset-backed products and natural resources, with a slight decrease in revenues compared to a very high Q1 last year. We notably benefited from continuous solid growth in renewables. In transaction banking, performance continued to be excellent, with a 51% increase in revenues compared to last year, thanks to a steady commercial growth in a positive interest rate environment. Overall, slide 24, GBs delivered once again an excellent quarter. Revenues are stable in comparison to a very high Q1 last year and thus remain under control. They are down by nearly 6% on the reported basis and slightly up by 1.7% on an underlying basis excluding SRS. This translates into a competitive underlying income ratio excluding SRS of 53.7%. In terms of profitability, TBAS delivered an outstanding quarter with an underlying revenue up by nearly 4 percentage points compared to last year at 24.7% each one and above 27, excluding SRF. On the corporate center, slide 25, Revenues are impacted by the unwinding of the hedges on the TLPR hoop, following the decision made last year by the ECB. The total impact is expected to be around €300 million in 2023, out of which €100 million in Q1. In addition, the implementation of IFRS 17 impacts both revenues and costs by around €70 million in Q1. Regarding operating expenses, as usual, Inc. includes the transformation charges for a total amount of €182 million, largely related to costs linked to the merger of the French networks. All in, net contribution to the group's net results is negative by around €400 million into one. I will now let the floor to Frédéric for his conclusion.

Thank you very much, Claire. Let me just conclude by saying beyond, of course, the strong first quarter and, of course, having in mind the eve of our management change in two weeks' time, we again are implementing successfully a renewed business model. The creation of this new bank on the French retail market, branded Société Générale, with a remarkably well-managed merger process with this last milestone during this weekend. Boursorama, which is reaching a 5 million client figure and which will be a differentiating asset for the coming years. And of course, with the acquisition of this plan, the creation of a leading global player in sustainable mobility, which in my view will be an opportunity for a sustainable and profitable growth for the coming 10 to 15 years. Let me say, of course, there is still hard work remaining in the coming years to extract the value of all these projects. But of course, with these milestones about to be completed in the coming days, the execution risk is certainly, in my view, significantly reduced. And I just would like to share my conviction that these new developments will definitely help us to meet our objectives in terms of sustainable profitability. Eventually, let me just say that I'm happy and proud that the management transition process went very smoothly and has allowed Slavomir Kupa, my successor, ready to take over in the best conditions and without, of course, losing any momentum. So now we are ready to answer your questions. Again, the floor is yours.

Ladies and gentlemen, if you wish to ask a question, please press star and one on your phone keypad. Please ask your question in English. The first question is from

delphine lee of jp morgan please go ahead yes uh good morning thanks for taking my questions um so my first question is uh on french retail uh just to understand a little bit the performance um just to understand i mean why do you think um softgen is performance in french retail seem to be weaker than peers, BNP and CRADAG. That's the first question. And the second one, French retail as well, is, so there is this bounce back in 24, which is driven by the hedge maturing. Could you give us a bit more color on sort of the structural hedges and how much should we expect in coming years? Any kind of color around you know, these impacts would be very helpful to forecast French retail and I. And then just a very quick, just clarification on capital. In terms of regulatory, we've taken four basis points this quarter. I mean, how much more is there? I think there's still trim, which was from memory around 40 basis points. If you just can remind us of the coming capital impacts. Thank you very much.

Hello, Delphine. I will let in a minute Claire to comment on the hedging policy and the capital perspective. Sébastien will say a word on the commercial performance. I don't understand very well your comments on the weaker performances. Of course, the big impact here is on the net interest margin, but what I've seen personally is And maybe I'm wrong, but when I look at the communication of Crédit Agricole, both in terms of their regional banks and LCL, when I look at BPCE, Banque Populaire, and Caisse des Pains, I saw personally a decrease between 14% and 30% of the net interest margin. And so it seems to me that our 18% decline is pretty much in line with the first quarter, with, as you said, one higher, but I think we are very much in line with the big players on this market. So from that perspective, I don't think we are very, very dissimilar. So perhaps Sébastien first on the commercial performances, and then Claire will elaborate on the two other aspects.

Yeah, so on the commercial performance, what we can say is Regarding fees, which is probably the best proxy to assess commercial performance, fee-based activities were solid in Q1 compared to last year, both on service and financial fees and insurance fees. So that's point number one. And that's obviously important because we were, during Q1, in a context of preparing the finalization of the merger between Societe Generale et Crédit, you know, which is always something which could have been distracted the teams from the commercial performance, and clearly that was not the case. Regarding the credit production, you know, the situation in the French market, so commercially speaking, we have taken a decision to reduce significantly our credit production for our home loans because we wanted to protect as much as possible our margin in this French market where the usual rate is clearly something which constrains our business on a day-to-day basis. And regarding the author segment, credit production is down compared to last year for, I would say, the same reasons as far as consumer credit is concerned. And because of our selective approach in terms of corporate credits, Again, in order to protect our margins for the future. Thank you, Claire.

Any other aspects of Delphine's questions?

Yes, the two questions. The first one, the hedging policy. So, as I tried to explain, the group had taken hedges until early 2022, which were calibrated in financial conditions. related to a negative interest rate environment. This hedging will mature until the first part of 2024. After their maturity, we come back to a, let's say, more well-suited to the current interest rate environment with a hedging policy fitted to a positive and growing interest rate environment which enables us to recover the capability to capture the growth of interest rates on the French market, which is maybe a more long-term market than some others, a replacement of our former long-term position, maybe slower, but a capability to capture growth, which explains that for 2024, We anticipate that we will come back to the level of 2022 and an upward trend going forward. Regarding capital, so in 2023, we still anticipate a 35 basis point impact related to regulatory topics. We have guided, if I remember well, on a 40 basis point, so you have four basis points We do have four this quarter, so still 35 basis points to come. For the rest of the 2023 impact, we confirm the impact of the Lisbon acquisition, for which we have guided on around 40 basis points impact, and Bashtin, where we have guided for around 10 basis points impact, which remain relevant.

Thank you. Great.

Thank you very much.

Thank you. Next question.

The next question is from Tariq Elmejad of Bank of America. Please go ahead.

Hi. Good morning, everyone. Just two questions, please. First on ALD and the auto leasing. So what's your view on the used car resale value, given that now the new New production cars from the AOMs are actually, prices are reducing. I mean, we heard about Tesla, but it's a trend, especially in the EV. So maybe you can tell us what's your view on the used car value. I mean, when the used car value is high, it becomes similar to a new car and the impacts on that. And maybe to address that, you can give us a split of EV and the rest of your fleet. And the second question is on the French Network's mergers. I understand there's a second IT migration this weekend. So what will happen after that if it all goes well? So what will happen in terms of decommissioning the old systems, departures of staff, and so on, and how quickly then the cost savings will start to feed in? Thank you. Thank you very much. And just on clarification, I mean, Claire, you mentioned the moving parts for the capital. I didn't get the last 10 basis points. Was it for what, actually?

Thank you. The acquisition, Tariq.

Okay, thank you.

Hello, Tariq. I will turn to Jonith for your first question on ARD and then Sébastien on the merger process. Jonith.

Yes, good morning, Tariq, and thank you for the question. First, regarding the price cut, Actually, the move from Tesla was not really followed by the other manufacturers. Tesla has had a quite volatile pricing strategy the past few months, so it's very significant increase this last year to pass the increase of raw materials and disruption to supply chain. The recent reductions still maintain their prices higher than pre-COVID. And it's fair to say that the other OEMs do not have the same type of margin as Tesla. They cannot really afford to enter in a price war, so they have, until now, rather resisted. EV cars represent today 13% of our total funded fleet, and Tesla is 1.5%. Regarding your question, more general question on the evolution of used car prices, it's fair to say that we are benefiting from a very high, exceptionally high secondary car sales prices and markets. We expect this to only gradually normalize over the next 12 months. for many reasons. One is that actually we do see rather inflation on asset value and increasing in prices of new cars. Second, there has been a quite significant shortage of new car deliveries over the last three years, more than 20 million vehicles in Europe. So this should continue to increase to result in shortage of used cars, and this will benefit to ALD. And the last is that the demand for EV cars is actually picking up. It's quite strong, pushed also by regulation. So this should also support prices of EV cars, and in particular used cars, because that's a more affordable way for for people, for a large part of the population to buy EV cars. So overall, yes, we expect normalization, but it will be gradual over the next 12 months.

Thank you. Sebastien? Yes, good morning, Tariq. So as you said, so this weekend the second IT migration will take place. and it will put an end to the main milestones of the merger between the legal merger, which took place January 1st, 2023, and the two waves of IT migration, the first one in March, the last one this coming weekend. So what does it mean? It means that all the milestones which are the trigger of the cost synergies will have been completed after this weekend. And so, concretely speaking, the Crédit du Nord IT system will be decommissioned later during the year, 2023, and the merger of branches will start at the end of the month, this month, on the ground, and with all the job cuts associated with these mergers on the ground, with the objective, which has been secured, to extract 30% of the cost synergies before year-end and 80% before the end of 2024. So we are totally in line, both in terms of timeline and in terms of numbers, with the targets we presented to you in 2021.

Thank you very much. Sebastian, next question.

The next question is from Amit Goel of Barclays. Please go ahead.

Hi, thank you. Two questions. One, just going back on slide 17 and the short-term hedging policy, I just wanted to really understand also how you think about that kind of short-term hedging a bit better because clearly it's had quite a negative impact impact on the net interest income for this year. How do you think about it going forward? For example, if we are potentially towards the end of ECB rate hikes, would you look to put some other kind of swaps in place? How do you think about that? Within that, in terms of the trajectory from 2023 to 2024, you know, please could you just provide some of the moving parts and assumptions that you've made to get to the rebound? And then I had a second question just on the LCR ratio. Clearly it's at a very strong level. I'm just kind of curious, you know, why you've chosen to increase it to this kind of order of magnitude because clearly there's a cost involved And so just wondering, you know, whether you can bring that down. Is there any kind of constraint or, you know, other factors that maybe we're not thinking about? Thank you.

Hello, Amit. I will leave Claire answering your question on LCR. First, on the hedging, let me just, again, come back to, first of all, What I've seen with all the players is similar impact. So, of course, I can comment on their hedging policy, but I'm not so sure that we are that different. You will have to check with them. As we've said, we had a policy in a very different environment to hedge our net interest margin in the short term, an horizon of around two years, that we have started to adapt, of course, mid-2022 with a very different perspective in terms of interest rate environment. as well as dynamic of the balance sheet. So we have started to adjust, and it's pretty clear that there will be probably further adjustments, taking into account also that on the regulatory side there might be more, if you wish, standardization, harmonization of that, as you know. for example, for the horizon of the net interest margin for one year. So it is likely, again, that we deal with that, that there will be an adjustment of the horizon. And, of course, factoring, as I said, a very different dynamic in terms of volumes, which would mean probably in terms of quantity of hedging instruments, less. And then, if I may just say, a very practical example, thing to say is that whatever the policy if you put an edge which is a swap whatever or an instrument which receives fixed rate and pay floating it will be very different in 2023 and of 2023 and of course in 2021 because you will of course benefit from the increase of the fixed rate side and except if you have a scenario where rates do not stop increasing but you know the market anticipate, on the contrary, a decrease, the financial impact will be very different. So, as we've said, we are taking into account all the parameters in terms of volumes and hedging policy that we have started to adjust, but we feel comfortable with this kind of guideline for 2024. And let's not forget, the decrease comes from the IVR, comes from the loan origination and the TLCRO, which is a series of impacts, negative impacts, of course, which will not be further replicated going forward. LCR, but perhaps Claire?

Yes, so the sharp increase in LCR is related first to an increase in deposit collection. We Again, in the slide, the level of deposits increased over the time. Second, we have achieved more than 70% of our long-term funding program, exactly 73%, which also contributes to the high level of LCR. And at the same time, the business consumption slightly decreased. So all this being together, put together leads to a 171% LTA ratio. So the is embedded in the financial performance of the group.

Thank you. Next question.

The next question is from Flora Bocahue of Jefferies. Please go ahead.

Yes, thank you and good morning. I think, first of all, Frédéric, it's your last call with us. So using this opportunity, of course, to wish you all the best for the future. And then in terms of questions, I'm afraid I'm going to come back to French NII. And the two questions are one on 23, one on 24. So for 2023, thank you for providing us with the guidance. If I understand it correctly, I think you're basically telling us that the run rate we are seeing in Q1 NII is going to be sustained for the rest of this year. But the one thing I don't understand there is that on the Livre arm, I guess we can expect it will increase further, probably by another 100 basis points in August, so further burden to come versus the Q1 run rate. And then on the TLT arrow drag, You haven't fully repaid it yet. I think you still have 47 billion euros of TLTRO at NQ1. So how should I think here about the moving parts this year for NII to be still the same for the rest of the year as it was in Q1? And then for 24, thank you again for the slide 17. You provide us with clear moving parts for 23 versus 22, but not for 24. So what gives you the confidence beyond the volume growth, beyond the hedge roll-off in 24, that you can grow the NII? In particular, did you consider that the ECB could cut rates? And also, did you consider a lower rate on the Livrea in 24? Thank you.

Claude, first of all, thank you very much for your kind words, and I will say a few words in conclusion. I will let Claire to complement. Perhaps can I say we have factored a further increase of LIVERIA in 2023. We have not factored a specific increase in terms of volumes in a kind of, if I may say, progressive erosion or the leveraging that the ECB wants to implement, so there's a no specific element, but then the other parameters play a role, including the hedging instruments and the way they evolve and mature. So if I may, again, I think we were the only one to give a guidance, but I think that, yes, we think it's a reasonable one. And the TRO, whatever the reimbursement, the benefit in terms of the, if I may say, the The subsidy, which we are coming from the level of rates which we were supposed to get. Actually, we were supposed to get money, and which has disappeared, and which is a difference. Whatever, if I may say. Because here we have money that we pay at the normal rate. So I think the benefit is disappearing, and we have factored the disappearance of 300 million euros of interest. What was the positive in 2020? So I think that the dynamic for 2023 is pretty clear. And then 2024, I would like to see if we have taken the forward rate and the march. So yes, there is a slight decrease, which is in this forward curve, but which is relatively limited, if you look at it. which I think is not fundamentally impacting Nivea, to be frank. I'm turning to Claire if I'm not wrong. It's more or less stable, probably for the 2024 years, and with no specific strong volume assumption, as I've said, in an environment of deleveraging. So here it's more the benefit of the change in the hedging policy that I've already commented in a very different dynamic, In practice, the volume will be lower. The gap that we have to manage, practically speaking, and as I said, also the horizon, which has already started to change because we will probably align with the regulation, which is emerging on this topic. So if I may, with these assumptions, I think we feel pretty confident on the trend for 2024. Thank you.

Next question.

The next question is from Guillaume Tiberguin of BNP Paribas Exxon. Please go ahead.

Yes, good morning. I've got a couple of questions. One is on French retail. And actually, I know you're not going to commit to 2025 now, but The question is whether there is any reason why the rebound in 2025 would not be of a roughly similar magnitude as the revenue rebound in 2024. If we consider that you reinvest your hedges at three years and that the repricing of the loan portfolio will be significant, taking place over eight years, and therefore eight steps of the same magnitude. The second question relates to Basel IV. Claire, in your headwinds to Capital, you didn't list Basel IV, but can you reconfirm 100 bps day one and 20 bps after day one, or can you refine a little bit and hopefully down that guidance? And the last question maybe is in global banking and advisory. It's down 5% year on year. I know the base is quite high, but your loan book is down as well. And given that you're a little bit capital tight, is it fair to assume that you're going to have to constrain the growth in global banking and advisory in order to protect the capital? Thank you.

Hello, Guillaume. If I may, we are not commenting on specificity on what we said for the improvement. I think it's a tweet, but we are confident on this. Second, on Basel IV, yes, you are absolutely right with the figure that we just said is probably a conservative assumption. And beyond passing the floor to Slavomir, because Slavomir will be the one in charge, I just would like to highlight, I mean, clearly and to a certain extent, as I said in the figures, in some markets like France, the dynamic of loans will be relatively limited for the coming quarters, because it's what the ECB wants to have, you know. So, let's face it, it's more difficult to borrow 3 or 4% and 1% for mortgage or same thing for consumer credit. So there is also beyond the strategy that Samuel will comment. There is also a fact that the environment is probably less dynamic for risk-weighted asset development. Samuel.

Hello. Good morning, everyone. On GLBA specifically, on global banking specifically, You said it, it's a slight decrease of a peak, a historical peak, and it's not indicative of anything else than slower demand in the end and some minor effects impact. And so it is not indicative of any change in our strategy at this point in time, which I can remind you was to have a very moderate growth of the aggregation of all the values in this business.

Thank you.

Next question.

The next question is from John Pease of Credit Suisse. Please go ahead.

Thank you. Let me also say thank you and good luck in your next endeavors too, Frederick. So my first question, please, is on global markets. Given the good result again this quarter, Does that old range of revenues, 4.7 to 5.3, still stand, especially with the Bernstein deal coming up? And secondly, on the cost of risk, I heard your comments around Q2 quality still being very good. Are you seeing any pickup in provisioning in any areas? I think one of your peers mentioned consumer finance and very small SMEs, which are starting to see early signs of deterioration. Thank you.

Hello, John, again, and thank you also for your kind words. I will turn to Slavomi on the global market. On consumer credit, there is no specific iteration. Let me highlight that we have, as you know, a specific franchise, mainly with very limited revolving credit with floating rates, more amortizing loans and car loans, so nothing specific to report on this front.

So at the risk of being boring, the range we gave remains valid. And, you know, we started the year, remember, there's always functionality in the global market's revenues. We started it clearly towards the top of the range, but the range remains valid. But it does not account for Bernstein revenues, which we will discuss. take into account at a later stage. Thank you.

Next question.

The next question is from Gulnara Saitkulova of Morgan Stanley.

Please go ahead. Hi, good morning, everyone. It's Gulnara from Morgan Stanley, and thank you for taking my questions. My first question is on costs. You reiterated your cost-to-income ratio target for this year between 66 and 68 percent, excluding CRF. At the same time this quarter, you delivered better than expected results, and we saw some decline in total costs year on year. You also mentioned that excluding CRF contribution, the underlying cost-to-income ratio was at 16.5, which is below your target range. What are the key moving parts that we need to consider for the cost outlook for the remaining quarters of this year? And where do you see the most opportunity for the cost efficiency? And given the benign trend we saw this quarter, do you think the full year costs can end up closer to the lower bound of the cost income target range at 66%? And a quick follow-up on the capital headwinds that you mentioned, 35 bps of the remaining regulatory capital headwinds that you are going to take this year. Do you think these are likely to come through in the second quarter, or should we expect this to come in the second half of the year? Thank you.

Hello, Guilherme. I will turn to Claire on your two questions.

So, regarding cost, so you're right, for Q1, cost increase is quite low, and cost-to-come ratio is also quite low. At that stage, we do not revise the guidance for the rest of the year. It's very early in the year, so we never change our cost guidance. This quarter, we changed the cost of risk one and that's all, so we do not update. Regarding the moving parts, I think that you have all the pieces. We, by the end of Q4 last year, guided on salaries, where we explained that we intend salary increase to be below inflation in all our subsidiaries. We also guided on the CTA, where we say that it should remain in line with last year, with 2022 level. I think that... the main deficit that we may expect regarding costs. Regarding capital, its regulatory impact, so at this stage, we consider that maybe most of it could come by the second part of the year, but I think that the most important at this stage is that it should come this year. for a quantum of 35 basis points. And at the end of the day, it will be the end of year 1 that will be relevant.

Thank you. Next question.

As a reminder, if you wish to register for a question, please press star and 1 on your telephone. The next question is from Pierre Choudeville of CIC. Please go ahead.

Mr. Choudeville, your line is open. Pierre?

OK, I suggest we move to the next one. And Pierre will be able, perhaps, if he wishes, to ask his question.

The next question is from Matthew Clark of Mediobanca. Please go ahead.

Good morning. Just wanted to try and understand the thought process behind your hedging decisions a bit better. So if I understand it right, since we went into negative rate territory in 2015-2016, I thought you had been shortening your duration and therefore increasing your sensitivity. sensitivity to short term interest rates. And then it now sounds that at the start of 2022, you changed that positioning and started to hedge out or to term out longer, thereby eliminating the short term rate sensitivity. And then now gradually that's rolling off and you're getting back to a kind of more normalized situation where you're maintaining that kind of longer term sensitivity. So is that, Firstly, the right way of thinking about it. And then secondly, I just want to understand where that decision to change hedging policy at the start of 2022 was taken. Is this sort of a divisional product-based decision? Is this sort of a top-down group treasury decision? Is this a senior management overlay proprietary positioning decision? I just want to understand how that decision gets made. Thank you.

Hello, Matthew. If I may, I don't think you're exactly right to put the two things together. What I mean by this is the modeling of each component of the balance sheet, which is one thing, which can create then gaps, then we hedge. And the hedging policy, the strategy, if I may say, is different from the modeling, the duration that we take into account, which in practice creates the gaps. So yes, as we've said, not in the beginning of 2022, we had implemented heading policy, both of the NAV, but also of the net interest margin in the short term. And effectively, as I said, we started, of course, with a very different dynamic. Again, we tend to forget where we were at the end of 2021, beginning of 2022, before the big events in Russia and beyond. And effectively, the confirmation of an inflation rate has totally changed of monetary policies, we changed, we adapted with a very different also perspective in terms of dynamic of the balance sheet. Again, rethink what was the dynamic of loans, but also of savings previously. And it was a decision where general management was also involved. So we looked at this and made the decision to adjust this hedging policy. So that's where we stand. And I think we've been very clear, as I said, on the impact, which are temporary, and going forward, as we've said, we will further adjust, if needed, taking into account the regulatory framework, which is more and more intrusive in these matters, in terms of horizon, duration, et cetera. So that will be a work in progress under Slavoomir and his team's responsibility.

Next question.

The next question is from Pierre Chedeville of CIC. Please go ahead. Mr. Chedeville, your line is open. Maybe your line is muted.

Pierre?

OK, well.

Next question.

Let's go for it, yes. And I hope we'll have Pierre at the end, but let's move ahead.

So the next question is from Anke Reingen of RBC. Please go ahead.

Thank you for taking my question. Yeah, and thank you and all the best to Frederick. So firstly on Bozerama, can you just talk a bit about in terms of how Bozerama is expanding or is growing at the expense or kind of advising the original franchise? If you can maybe just talk about how much of the customers are coming from the SOCgen network and in terms of the pricing, the franchise, I guess you talk about, yeah, deposit and savings collection here. And then secondly, probably just a question for Claire in terms of transformation costs for the rest of the year, including ALD, what should we be penciling, and probably 24 as well. Thank you.

Hello, Ankur. So first, Philippe on performance and Claire on your CTA question. Philippe.

Yes, hello, good morning and thanks for the question. I mean, there is no specific transfer from HG clients to Boursorama. I mean, yes, some existing HG clients are opening additional accounts in Boursorama, but as exactly the clients coming from the other banks. So at the end of the day, the market share of AG clients in the new clients of Boursorama is exactly the market share of AG in the French market. So there is no specific bias or approach there. And regarding the overall performance of Boursorama, as mentioned by Claire, I mean, we are taking full advantage of what we have done during the last year, and we are notably taking full advantage of a more important client base, better equipped. We are also taking advantage of a very solid deposit base, which has increased significantly last year, notably after the acquisition of the ENG clients. And in addition to that, as you know, a very strict cost control on the operating costs, but also on the acquisition costs. So overall, I mean, it explains the very strong performance of Bursorama in this first quarter. Thank you. Claire?

So regarding CTA, the level this year should be in line with last year. As you remember, last year it was $640 million. So this year it could be in line with that amount. Part of it is related to the French UK's network transformation the last year. And you're right, part of it is related to ELD. It's around 200 million euros for the whole year. This quarter, as a reminder, we had 58 million euros, around 60, related to ELD transformation costs.

Thank you.

Next question.

The next question is from Mate Nemes of UBS. Please go ahead.

Yes, good morning, and thank you for the presentation. Two questions, please. The first one is going back to Borsorama. So it seems like client acquisition is still happening at an elevated pace, but lower costs, revenues rising, and the break-even performance in Q1. Should we expect this basically as a base from their performance could improve further, and perhaps we could see a positive contribution in the second half of the year? The second question is on asset quality and risk costs. In the first quarter, you had 13 basis points. I appreciate you revised your guidance down. I'm just wondering which particular areas do you expect to pick up in provisioning in the second half of the year or the second quarter? Thank you.

Hello. I will turn the floor to Philippe on your question on Bursorama. If I may, the 13 basis points is beyond any environment consideration and extremely low figure. So we are just factoring something more normal, knowing that we know that certain sectors might be a little bit more vulnerable. We have commented on the fact that the diversification of risk in the portfolio is excellent. And if I may, the revision of the guidance means that we have in mind something pretty progressive in that increase. But there's nothing, if I may, specific we've commented on commercial real estate. We know that certain sectors exposed to consumer spending might be impacted, et cetera. But it's also just the natural evolution of – the further impact of the higher interest rate monetary policies, which will translate, in our view, in a slower growth environment, which will, step by step, probably mean, if I may say, more normalized cost of risk versus 13 basis points, which is very low, but with nothing actually specific. When I looked at other European peers, I think they were, generally speaking, low cost of risk, and as you've seen, no write-backs of provisioning S1, S2, so still a very prudent provisioning precisely also to be able to fare well on that front. Philippe, on Boursorama.

I mean, yes, we expect the revenue momentum of the beginning of the year to remain strong during the year. And we expect that all the drivers, the performance drivers I mentioned, I mean, will continue to fully operate, you know, for the remaining months of the year. So, yes, a strong momentum compared to last year in Botswana. Thank you. Next question.

The next question is from G.H. Golar of Kepler Chevro. Please go ahead.

Yes, good morning, Frédéric. Hello, Jacques-Henri.

I don't have any question, mate. Jacques-Henri, bonjour.

Bonjour, yeah, okay, look, no further question, okay? I just wanted to thank you, basically, because you gave me my big break 22 years ago when we did the defense of Sokjen against BNP. That was actually such a great memory. But, you know, I was thinking what would be the appropriate way... to say goodbye. And I thought about what Derek DeVries, American Century, that all of you know on this call, told me then when I left Maryland. She told me, Boss, we had good days, we had bad days, but we never had a boring day. I think it's appropriate. So thank you very much. All the best. And speak with you soon.

Well, thank you. Thank you very much, Jacques-Henri. Sometimes I think we would like to have boring days, but unfortunately for Slavomir and the new team, when I see about the environment, I'm not sure if this is the case. But thank you also, and of course I have great memories of this long-standing relationship. Before we close, can we have Pierre, or Pierre has disappeared definitely?

A last chance for Pierre? No.

As a reminder... It is the one for questions.

I think, unfortunately, Pierre will not be able to ask the question. Can I just say on my side, and just to compliment, thank you again to all of you, because I've always appreciated the level of exchange and transparency on my side. I've always tried to comply with the highest standards in terms of integrity of the financial communication, whether they were good or bad news, but at least integrity of financial communication for me is part of the sound culture. And again, I wish you all also the best. And of course, take advantage of that. to thank all my colleagues for their commitment along all these years, and wish all the best to Slavomir and his team. I would like to insist I'm very proud of the smooth transition process which has taken place. So thank you to all, and maybe see you soon. Thank you. Bye-bye.