Societe Generle Ord

Good morning, everyone. Thank you very much for joining our quarterly earnings call. This quarter was marked by a good commercial performance in most of our businesses, a limited increase in operating expenses, and a low cost of risk. Global banking and investment solutions in particular posted stable revenues compared to a high reference point reached last year. and international retail banking maintained as well as solid performance. On the other hand, the group's net result was penalized by the negative effect of short-term hedges on net interest income in the French retail, the impact of which peaked in Q3 23. It also includes, as announced during our Capital Markets Day, exceptional accounting items with no impact on capital ratio and no impact on shareholder distribution. On the one hand, it was the impairment of goodwill, and on the other hand, provisioning of deferred tax assets for a total negative impact of €610 million on the net income. This leads to a group debt income of €295 million for the third quarter, €905 million excluding the non-cash items, and it amounts to €2.1 billion for the first nine months of the year. On costs, operating expenses are up by less than 1 percent at the constant perimeter, leading to a cost-income ratio of 70.4 percent for the quarter. And this ratio stands at 72.4 reported for the nine months and 68.9% if we exclude the contribution to the SRS. Regarding cost of risk, the defaults remain limited and we maintain a high S1, S2 inventory. And all the cost of risk is at 21 basis points in Q3 23. Overall, the reported ROTI stands 3.8%, 6% excluding non-cash items, and it is at 5% for the nine months on an annualized basis versus 1% last year. Excluding the contribution to the SRF, the nine months 23 ROTI stands at 6.5. Allow me here to make the comment that this is the first quarter where we to apply our new approach to the results communications with a focus on the reported numbers, which obviously is a significant change that has to be kept in mind. Finally, in line with the previous quarters, the balance sheet is very solid with a CET1 ratio of 13.3%, up to 20 basis points this quarter. and a robust liquidity profile with an LCR ratio in particular which remains strong at 147 percent thanks to high liquidity reserves and stable deficit base. Before leaving the floor to Claire, I simply would like to take a brief moment to highlight once again our strategic ESG ambitions and in particular the commitments we announced during the CMD. with the addition of a new target today on steel, which we disclose as part of these results. As explained, September is at the heart of our strategy. We are strongly committed to a more sustainable world and to increasing our contribution to the UN sustainable development goals by both accelerating the pace of decarbonization of our businesses, but also, as you know, through investing for sustainable future through a €1 billion investment fund, and also relying in our thinking and decision-making on the inputs of the Scientific Advisory Board, because these topics are complex and require scientific foundations to enhance the decision-making. ESG is imperative for us, it's fundamental to our strategy, And it has been once again recognized by Sustainalytics this quarter, positioning us among the best banks in the world and the only French bank rated low risk. I will now leave the floor to Claire, who will give us more details on the financial results.

Thank you, Flavomir, and good morning to all. Let's start now by looking at the revenues on slide six. In Q3, the group reported total revenues of 6.2 billion euros, down minus 6.2% compared to a high Q2 in 2022. Business by business, global banking and investor solutions recorded solid activity with revenues almost stable compared to a very strong Q3 last year, thanks to a robust performance of market activities and a record third quarter for financing and advisory. Similarly, international retail banking posted solid revenues, up by 3% compared to Q3 last year, thanks notably to a solid momentum in Romania and a strong performance in Africa. However, those good business performances do not allow to fully mitigate the decline in revenues, which is due to First, the continued negative impact on French retail of short-term hedges of the NII, which peaked in Q3 before maturing progressively in H124. Adding the wholesale impact, the NII in French retail is down by €317 million compared to last year. Second, a decrease by €270 million in revenues of the corporate centre due to the impact of the unwinding of the hedges under TLTRU, and to a base effect compared to Q3 2022 on volatile items. Also, note that the integration of Lisbon results in a contribution of over 300 million euros of additional revenues. Over the first nine months of the year, the trend is similar, with good performance in GBIS and international retail, while the decline in revenues comes from the NII in French retail, the impact of the hedges on the CLCRO, and one less impact was disclosed in Q2. This is also the consequence of a very high 22 comparison base, which explains, for example, why market activity shows a decrease in revenues of almost 300 million compared to last year. Overall, the revenues generated since the beginning of the year are in line with 21. Let's have a look on the operational performance on slide seven. Despite the integration of this plan, which contributes to around 340 million euros in the cost base, operating expenses only increased by 2.4 percent over nine months compared to last year, a level well below inflation. Excluding the changes in perimeter, the positive evolution of the contribution to the SRF and the transformation charges, the increase in the nine-month curve base amounts to around €250 million compared to last year, which means less than 2%. This illustrates the importance we place on strict cost management, which we intend to further strengthen going forward. All of this leads to a reported cost income ratio of 72.4% for the first nine months in 2023. It's 68.9% excluding the contribution to the SRS. As indicated during the Capital Market Day, we expect a linear improvement of the cost income ratio from 2024 onwards. Let's now move on the next slide on the cost of risk. It remains contained across businesses. At group level, it stands at 21 basis points in Q3 and 15 basis points in nine months. It demonstrates once again the quality of our assets, which still with no material deterioration of our portfolio. For the quarter, the cost of risk amounts to €316 million, of which €419 million in Stage 3, and a net reversal of €103 million in Stage 1 and 2. Regarding the latter, it's mainly explained by your reversal of provision and ration assets linked to the significant decrease in ration exposure, as we will see in a few moments. The NPR ratio remains low and stable compared to Q2 last year at 2.9% compared to Q2 this year at 2.9%. The gross coverage ratio is solid at 46% and the net coverage plus collateral and guarantee stands around 80%. At the same time, we maintain high precautionary provisions on stage one and two assets in Q3. At the end of September, the total outstanding of stage one and two provisions amounts to 3.6 billion euros, i.e. 2.8 times stage three cost of risk in 19. In this context, we revised downwards our cost of risk guidance for the year, which is now expected below 20 basis points in 23. A few words now on risk management on slide nine. First, we think important to update you on the ration exposure. The group has further materially reduced its offshore exposure, which now stands at 1 billion euros at the end of September. It represents a 38% decrease compared to end of June. The net exposure at risk on this portfolio is now around 300 million euros before provisioning. The residual risk is highly covered by a total provision of around 200 million euros. The onshore exposure remains limited at 15 million euros. Overall, this orderly exit from Russia contributes to further reduce the tail risk at group level. More broadly, the group can rely on a strong asset quality, as illustrated once again by the low cost of risk even in a more challenging economic environment as it is today, with higher rates and inflation. Our home loan portfolio is, for instance, largely composed of fixed-rate loans, which is very protective for clients. At the same time, we have maintained strict monitoring, current origination policies, and limited exposure to the most sensitive sectors and asset classes. such as commercial real estate, LBO, non-banking financial institutions, or even with professionals and SMEs, notably in the construction, non-food retail, or catering sectors. All of these led us to revise downwards our anticipation in terms of cost of risk. Let's now turn to capital flight chain. At the end of September 23, The quarter one ratio lands at 13.3%. It's up 20 basis points compared to last quarter, and it's now 350 basis points above the MDA. The fully loaded ratio stands at 13.2%. The strong quarterly increase results first from an organic capital generation of 15 basis points, plus provision for distribution, And second, from a decrease in organic RWA for an equivalent of 16 basis points, mainly due to a strict monitoring of RWA, combined to a lesser extent with some delay in capital consumption of businesses. This is a perfect illustration of the kind of monitoring of organic capital we intend to have. This quarter, we also benefited from six basis points related to the Group Employee Share Ownership Programme. On the contrary, regulatory items have a negative impact of 16 basis points in Q3. Overall, the risk-weighted assets remain broadly stable at €384 million, and the other capital ratios are all comfortably above requirements. Moving on to liquidity, slide 11. First, let's note that our 23 long-term funding program is almost completed at 98%. The funding balance sheet of the group remains sound and solid with a nexus of long-term resources, notably thanks to a strong and highly diversified deposit base, high quality reserves, and a limited reliance on short-term funding. The robustness of the liquidity profile has been further strengthened in Q3 with, on the one hand, a stable deposit base compared to end of June and, on the other hand, higher liquidity reserves, which are up 25 billion euros compared to last quarter. Overall, the loan-to-deposit ratio stands at 81% at group level, and the LTI ratio remains strong at 147, plus repayment of 5 billion euros of TLTRO into three. I will not comment slide 12, and let's now turn to the business performance, starting with French retail, slide 14. As stated during our Capital Market Day, please note that insurance is now reported with edgy network and private banking. On the credit side, Total loan outstanding is down minus 4% in Q3 versus last year, with differentiated trends between retail and corporate. Corporate activity remains resilient, with loans excluding PGE up plus 1% versus last year, driven by short-term loans. On state-guaranteed loans, outstanding has decreased from around €18 billion at the end of 2020 to €8.9 billion currently, down by minus 31% compared with Q3 last year. On loans to individuals, the group remains cautious with a continuing selective approach in home loan production, started being 22, which translates now to a decrease in home loan outstanding by minus 5% compared to Q3 last year. On the deposit side, Total outstanding are stable, that is Q2, with deposits still shifting from side deposits to term deposits. On savings, the group is experiencing growing assets under management. Private banking assets under management are up plus 5%, with net inflows of €0.6 billion. Life insurance outstanding is up plus 2%, to €132 billion, with gross inflows amounting to €2.6 billion. In France, the year-to-date net inflows amounting to €0.5 billion. Finally, premium increased by plus 4% in protection versus Q3 last year, with PMC Premier being up by 9% versus last year. Let's now focus on the French retail banking net interest income as close Slide 15. As you can see, and as already stated since the beginning of the year, we have reached, in Q3, the peak of the negative impact of short-term hedges on NII put in place until early 2022. For 2023, we now expect the NII to be down by more than 20 percent compared to 2022. Starting with a slight increase expected in Q4, At constant balance sheet and rate environment, we expect the NII to progressively improve over the coming quarter to reach in 2024 a level at least equal to its level in 2022. Note that this projection is based on assumptions consistent with our current economic scenario, which was slightly updated since the Capital Market Day. In terms of NII sensitivity, It has evolved since the capital market day, following next up carried out things. It's now around plus 20 million euros in year one and around plus 40 million euros in year two for a 10 basis points rate increase. It remains stable at around 30 million euros for a move of 1 billion euros in such deposits.

Moving on to Boursaubon, which changed its brand name during the quarter, slide 16.

In Q3, Boursaubon posted a record high quarter with the onboarding of 412,000 new clients in line with a new target set last September. Since the beginning of the year, the number of new clients largely exceeds 800,000 with a stable overall profile. At the end of September, Boursaubon reached 5.4 million clients with a low churn rate, which is further decreasing and below market standards. The assets under administration continue to increase at a consistent pace per vintage. On the commercial front, deposits and financial savings significantly further improved. They are up 21% at 55 billion euros In particular, Borsobon continued to collect high amounts of deposits, notably those bearing interest. Similarly, net inflows in life insurance are slightly positive. While remaining significantly lower than pre-COVID, home loan production started to rise again this quarter. On the day-to-day banking, the activity continued to be strong and grew by 20% in Q3 with a record number of operations per credit card.

Let's now comment on the quarterly P&S.

The French retail banking activities, including private banking and insurance, generated a net profit of €110 million in Q3. Total revenues excluding Pell Sale are down minus 15% versus Q3 last year due to the headwinds of the net interest income as previously guided. net interest income excluding PEL-STEL is down minus 27% versus last year and minus 21% in nine months. Therefore, we now expect the NII to be down by more than 20% in 2023 compared to 2022. Meanwhile, commissions remain resilient, down by 2% versus last year, The decrease is mainly due to services, notably in the context of Boso Bank's acceleration in client onboarding, the financial fees being up compared to Q3 last year. Regarding costs, they remained under control. They are down by 2.7% compared to the Q3 last year and include a €46 million change charge for transformation costs. Last, Cost of risk remains contained at 18 basis points. Overall, the reported RO&E comes at 2.8% in Q3 and 4.5% for the first nine months. Turning on to global markets and investor solutions, slide 18. On global markets, revenues remain solid at 1.3 billion euros. Despite a less conducive market environment last year, they are slightly down by just 2% compared to a record third quarter in 2022. In details, equities had a strong performance considering the record Q3 last year with a slight decrease of 1% in Q3. We have observed a normalization of market conditions for flow and financing activities almost fully offset by a robust level of commercial activity driven by strong momentum in investment solutions. On fixed income, revenues are down by 5% in comparison to Q3 last year. The current market environment was less conducive for flow activities. Similarly to the equity platform, client activity is high in investment solutions and rates. On financing and advisory, we maintain a high level of activity. This is the highest Q3 ever at 827 million euros, representing an increase of 2% in comparison to Q3. Global banking and advisory displays the good performance in Q3 across businesses, with revenues slightly down by 3%. That is a very high Q3 last year. In detail, we benefited from, first, a sustained momentum in asset finance and natural resources, second, a solid client activity in asset-based products, and finally, a rebound in investment banking driven by acquisition finance and continued solid performance in debt capital markets. In transaction banking, Performance is still robust, with an 18% increase in revenues compared to last year, still driven by both business development and high interest rate environment. Overall, slide 20, TBIS delivered a very good set of results in Q3. Revenues are solid, flat in comparison to a high Q3 last year, and costs are well contained. Despite the current inflationary context, They are up only 0.6% on a reported basis and include €41 million of transformation charges. This translates into a competitive reported cost-income ratio at 64%. It's 70% in nine months on a reported basis and 63% excluding SRF. It's once again a strong quarter with a reported high-teens RO&E of 16.9% in Q3 and 18.8% excluding SRF for the nine months. On international retail banking, on slide 21, the two regions have good commercial activity in Q3. In Europe, loans are up by 5%, deposits by 3% on a yearly basis. Outstandings are up across segments in both countries. In Africa, loans grow by 4% and deposits by 3% versus Q3, with a strong business performance in sub-Saharan Africa. At €1 billion in Q3 2023, revenues improved by 2.8%, thanks to a strong increase in Africa by 11%, and a good performance in Romania, whose revenue are up 8%. These were these performances, more than compensate the pressure on the NII and Czech Republic, which down compared to a very high level in Q3 last year. Overall, our international division maintains a satisfactory performance this quarter again, with the ROE at 17%. In the mobility and living services division, revenues increased by 22% in Q3, thanks to a 37% rise at AVENS, which benefited from a contribution of €300 million from Lisbon. Regarding AVENS, margin revenues linked to living contracts and service margins remained stable since last year on a like-for-like basis. Youth car sale results are normalizing at 1,033 euros per unit, including the reduction in depreciation costs, down just a very high Q3 last year at 3,014 euros per car. Excluding depreciation costs, youth car sale results per car is down to 2,346 euros in Q3, from €3,607 in Q3 last year. Please note that Lisplon revenue contribution of €300 million has been impacted by two specific elements in Q3. First, a negative market impact of €82 million related to the hedging portfolio of Lisplon. And second, and pending the finalization of the PPA, consolidation adjustments on the used car sale results and depreciation costs, which impacted by around $150 million, the revenue contribution in Q3. Activity-wise, earning assets increased by 14% compared to Q3 last year due to the rise in car values, and at the same time, the funded fleet grew by 3.4%. When it comes to the consumer finance business, loans increase by 3%. Revenues are down, notably in France, due to the impact of the usury rate and the competitive landscape. Finally, equipment finance leasing outstanding are up 4%, with stable revenues quarter on quarter. All in all, slide 23, international retail mobility and leasing services contribute to a group for 377 million euro net income, equivalent to a 14.9% ROE. Revenues increased by 12% and costs by 34%, essentially due to the integration of this plan and the negative growth in Czech Republic compared with a very high Q2-Q3 last year level. According to the cost-income ratio, it increases to 56% in Q3, 54% in 9 months versus 49% in 9 months 22. Cost of risk at 43 basis points remain contained in Q3. On the corporate center, slide 24. Revenues are down year on year, notably due to the unwinding of the hedges of the TLTRO that had a negative contribution of 63 million euros in Q3, out of a total impact around €300 million in 2023. In addition, the volatile items related to the fair value of the swap used for the replacement of the equity stake in the subsidiary, which were positive last year by more than €100 million, lead to a strong base effect. Moreover, And as it was announced during the Capital Market Day in September, the Q3 results include two non-cash items. First, the impairment of the goodwill of equipment finance and of the African Mediterranean vaccine and overseas activities for a total amount of around 340 million euros. Second, a provision of DTA for around 270 million euros. all in the net contribution to the group's net result is negative by minus 839 million euros into three let's now give back the floor to seven years thank you claire uh just a few words before moving on to the q a the squatter is a mix uh as you've seen between uh

strong to solid performance across a number of businesses, obviously negatively impacted by the continued drag on the French NII and the number of items which we had discussed at the September capital markets day leading to a transitionary quarter in the transitionary year as some of you put it this morning. In terms of the Q&A, let's stick with our rule of two questions per person, and please, 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 Giulia Aurora Miotto with Morgan Stanley. Please go ahead.

Yes, hi. Thank you very much. Two questions, please. The first one is on French retail. I'm a bit confused by the change in rate assumptions. If I understand it correctly, it's 40 business points higher than it was during the capital market today, but the guidance seems unchanged. So I was wondering how does that work? And by guidance unchanged, I mean 2024 NII being at least equal to 2022. And then my second question, on regulatory impact, you took 16 basis points in the quarter. The previous guidance was for 50 by year-end. Does that still stand or is Is there any change? Thank you.

Thank you.

I'll leave the floor to Claire on both your questions.

So, I will answer quite quickly.

First, on the French retail. So, we updated the economic scenario in line with our chief economist's view. So, the discrepancy, the gap is really slow, is really small. It's disclosed in the slides. and the impact is not significant regarding the trend on the net interest margin. So we updated the financial assumptions to be fully transparent, but it has no significant impact. Regarding the end of year guidance on quarter one, we have no change compared to the capital market day. We still anticipate by the end of the year a 30 basis point impact regarding regulatory impacts, mainly linked, as I said, during the capital market day to the on-site inspection on hybrid and also on the impact of trim and IRB repair impacts.

Thank you. Next question.

The next question is from Tariq Al-Majad with BOFA. Please go ahead.

Hi, good morning. Thank you for taking my questions. Two from my side, please, as well. I'll come back to the NII in French retail. So clearly you upgraded a bit the guidance, at least for the short interest rates. And also you mentioned 2024 would be above or equal to 22, which is, should we read it as a slightly more positive or you still reiterate exactly the same guidance? Because if it's the same, then there's something in between that has been more negative because, you know, better assumptions, similar guidance, what others? And then I link to that, should we expect some more potential temporary headwinds that you haven't announced yet that you still trying to figure out, I mean, for example, is the MRR included in your, changing MRR rules included in your numbers? And also, is there any other hedging that you didn't mention that could still intervene in the next few quarters? So in a nutshell, is really all negative news on the NIR are out. And the second question on capital, maybe I'm reading too much, but I saw this nice African map where you don't mention Tunisia and the review anymore. So is this just me reading too much or is there any change in there? And lastly, on the dividend, you accrued 50% payout just to confirm that this is just because the ECB asked you to take the higher end of the range and then at the full year, you will take back some of the capital that you over-accrued. And yeah, that's my question.

Thank you. Oh, I didn't press on the button.

Sorry. So thank you for your questions. I'll take the last two. Yes, the provision for the dividend is linked to regulatory. principle of provisioning the higher end of the range if you have a range. And it's not in itself a signal as to what will be decided by the board at the end of the year. In terms of Tunisia, no, there's no change in the situation. The review is still ongoing. There's nothing, no news there either way. And I'll leave the floor to Claire for your first question on the NII.

So, regarding the NII, we tried to disclose as precisely and transparently as possible our assumptions on the slide 15. So, you're right, the underlying assumptions are slightly better than for the capital market day. We keep an assumption regarding the LIVRE R rate, which is fixed. We have disclosed our assumptions regarding outstanding interest rates. So in a nutshell, it's slightly better, but it doesn't change dramatically the guidance, which is equal or better than 22.

So is the impact of MRR in this guidance?

No, it's written on slide 15. Okay, thank you.

The next question is from Azura Guelphi with Citi. Please go ahead.

Hi. Good morning. Two questions for me. One, again, on the NII. Could you give us the change year on year of the NII from the component of the hedging and how much has been the commercial deceleration that we have seen? Because in that way, we can see the progression just from the commercial hedging. That would be quite helpful to understand, well, The majority of the drag was from hedging this quarter, but there was also some deceleration on the commercial side. So if you can split that, that would be helpful. The other question is on the mobility division. When we look through the future, what are the main moving parts on the revenue that we still need to see playing out on the negative side, the funding realignment, the used car sale pricing. Can you give us some color on that? Thank you.

Thank you for your questions. We'll start with Pierre Palmieri, the PT CEO overseeing, among other things, this business, and then we'll move on to Claire on your NIA question. Pierre. Yes, thank you for the question.

So, I think Several things. First of all, on the margin, we have seen a stable margin, but in a context where the fleet was increasing, the net earning assets were increasing. So it means that we have seen in basis points a decrease in the margin, which is something that is going to probably to be a little bit lower than what we have seen in the past, but is being addressed by the management. Second is the negative market on the swaps. So we have a market of 220 million euros today that will progressively convert to zero as the derivatives book will mature in the future. in line with the evolution of our leasing contracts. These are the two negative trends. In terms of used car sales, I think we gave guidance of negative of 1,200 to 1,600 for the full year. So this is the price post-depreciation, and I think ALG is maintaining this guidance, and so are we.

So, regarding NII, I will not come back to the assumptions related to rates and to outstanding, which are disclosed. To answer your question regarding hedging, So, regarding balance sheet hedging, we slightly adjusted our balance sheet hedging with the sensitivity which is disclosed at the bottom of the slide. And regarding the NII hedges, which is at the root of your question, we have in 2003 an impact by €500 million. And year-to-date, since the beginning of the year, we are around €1.2 billion out of the €1.6 we had disclosed at the Capital Market Day.

Next question.

The next question is from Chris Hallam with Goldman Sachs. Please go ahead.

Yeah, morning, everybody. Just two from me. First, just if you could give us the profit track from Borsa Bank in the quarter and on deposits, just to check, does the 2% to 3% deposit growth you're talking about for 2024 on slide 15, does that include Borsa Bank? If so, should we just assume that next year Borsa Bank deposits are up and SG Network deposits are down? And then secondly, on slide 41 on your USCRE portfolio, I know it's really small, but just looking at it, it looks like resi exposure ticked up since Q2, as well as the portion that's classified as S3 also increased sequentially. So I just wanted to check what the plan is there. Is it just to sort of gradually manage down that overall exposure or sort of keep it humming along at the current levels?

So... First question for Claire, and then Stéphane Landon, our CRO, will address the second one.

So we'll be short on the first one. Yes, the assumptions include pour ce bon.

I'm not sure I get the full part of the question, but if it's regarding the commercial real estate portfolio, what we can say at this stage is that there is no significant increase. I mean, it's a slight increase, very marginal, and there is no intention at this stage to close the portfolio where it is right now. The second part, which is regarding the... We have increased slightly the proportion of S3 through this quarter, yes.

Okay, thanks.

The next question is from Flora Bocahut with Jefferies. Please go ahead.

Yes, thank you. The first question is going back to Havens. it's a difficult quarter to read. I find, you know, there's many one-offs. There is obviously the combination with this plan, the restructuring, many things. So maybe, you know, a simple question there, but should we consider the reported numbers that you present, you know, for events today or what it is in your mobility division as the trough, you know, the bottom? And the reason why I'm saying this is When I compare this to what was described as the normalized level of net profit, you know, at the CMD of ALD at the time, it looks like we are there at the net profit level this quarter. The second question is on the corporate center, because obviously the reviews were a bit lower than expected this quarter. Part of that is one of the TLTRO hedge unwinding, which I think is over now. But then there is this big move again, you know, on the fair value of the swap. So maybe can you help us? How should we think about the normalized run rate of revenues for the corporate center, maybe on a full year basis? Thank you.

Thank you. So Pierre on AVENS and Claire on the corporate center.

Yes, I understand the difficulty to read the results of the events this quarter. So it's a function, first of all, the fact that we are in the process of an acquisition. We are also in the process of the post-closing adjustments. And therefore, the PPA should end before end of the year. And this will bring more clarity. We have some exceptional, such as the negative impact of the hedging book. But all this should normalize progressively, and I think in the coming quarters, progressively, the numbers will be much easier to read and to compare one quarter to the other.

So regarding the corporate center, we do not guide on revenues on the corporate center because by essence, it's volatile. What I can say is Regarding the corporate sector, at first, regarding TLTRO, we had gained another 300 million euro impact, and we come to an end with 63 million euro. We still have a few million for the last quarter, but far less significant than the first quarter. Regarding volatile NDI, the most of the impact is related to a base effect with a significant revenue last year. This year, we have slightly negative revenues driven notably by the GDP rate curve, 150 exactly, but most of the impact comes from the basis effect compared to last year.

Thank you.

The next question is from Matt Clark with Mediobanca. Please go ahead.

Good morning. Two questions from me. The first one is going back to the long-term swap portfolio impact which you disclosed at the Capital Markets Day. So the 700 million benefit for 2023 that was on slide 52 there. I just want to understand exactly what that – represents because comparing it to the $15 billion of notional you get there, it implies a very, very high yield of kind of 8% or more on that portfolio. So I just want to understand if I'm missing something or what is the yield on that long-term swap portfolio at the moment to help understand what that $700 million represents. And then my second question is,

Is on the digital euro and whether you see any impact on your business from that in the incoming years threats or opportunities, thanks Okay, if I understood well your second question is on the digital euro so I'll say a few words and then I'll pass on the floor to Claire on your first question and On the digital euro, let me put it this way. My first question is, I think, as an industry, including in the industry, the regulators, the central bank, and everybody who's thinking about this evolution, I think we all want to make sure that we all understand what the purpose of that currency, so to speak, deal, that tool for both the customers, obviously, there might be some benefits to the customers, but obviously also for the central bank and for us to understand how does that interact with the way the banking system functions and the way for the central bank, I guess, the monetary policy functions. So the point I'm trying to make here is I think we all need to understand better what the purpose of these developments would be. Now, second comment, we are, more generally speaking, you know, through some of our developments within GBIS on the SD-Core side, very keen to experiment and design solutions for a world which is not really here yet, but which might change in the future, and making sure that in terms of digital assets, digital currencies, we have something eventually which helps transparency, which helps disinterrogation, which helps everybody basically be more active and more efficiently active in the financial system. So we don't expect a lot of impacts, positive or negative, from this in the years to come, but we are, you know, very much engaged both with the the central banks that are thinking about this, and also ourselves in terms of our own innovation and development in the space. That's all I can say at this point. Claire? Thanks.

Regarding the swap portfolio, so excluding the short-term net interest margin, the portfolio didn't change significantly with the capital market date. This portfolio is the hedging of our, for example, real estate loan production or the replacement for deposits. So since mid-September, capital market day, no significant change and no significant impact in the revenues we had disclosed for the capital market day, which were, as you say, 0.7 for this year, 0.3 for next year, and 10 to 0. It may change with the course of business, considering our new loan production going forward. But at that stage, no material, no significant change in the amounts we disclosed.

Claire, can I just follow up on that 700 million? Am I right to think that that's the spread between a fixed leg and a floating leg with 15 billion notional? Is that the right way to look at it?

It's an accrual. The NBI, which is closed on the SWAP portfolio, is exactly, as you said, the gap between fixed and variable rates. But the only disclosure I may have is that we account in a macro-hedging strategy our results on an accrual basis, so its results, it's not a market to show, and its results on an accrual basis.

But then, I mean, if floating rates are currently 3 or 4 percent, it implies a very high kind of fixed rate yield on that portfolio, like higher than risk-free rates have been historically. I don't quite understand how the yield can be so high then.

If I may just come back also to the SWAP portfolio, as it's the SWAP portfolio that hedges our balance sheet. swap portfolio hedges for example our real estate loans which are very long-term loans it's a replacement of our deposits so it's several maturities and it's a portfolio that has been built over the years, during the normal course of business, on a monthly basis, we hedge the daily production. That's why I'm not sure that it would be really relevant to have an approach with a notional and all that stuff. And that's why we thought that it was more efficient to disclose the accrues in the NDI that at the end of the day will impact the net interest margin.

Okay. Thank you very much for that. Much appreciated.

The next question is from Delphine Lee with the JP Morgan. Please go ahead.

Good morning. So I just have a very few small questions. One on the French retail again, sorry. Just wanted to understand two things, like one on the sensitivity. Why is it now a bit lower to 10 bits versus what you discussed before? um and secondly um also uh on your deposits assumption of growth of two to three percent uh for individuals can just explain what you think this is driven by i mean the trend so far has been have been a bit more difficult than that um and then my second question is on um the payout um for this year um is the intention still to have a bit of buyback um And do you care about the actual DPS level? I'm just trying to get a better understanding of, you know, what that mix would look like and also if it would be, you know, the 40% or, you know, how you look at this given that your profits are a bit lower this year. Thank you.

So thank you very much. Hello. So, on the sensitivity, I'll leave the floor to Claire in two seconds. On the deposit dynamics and growth assumptions, I'll leave the floor to Philippe, deputy CEO in charge of, among other things, of French retail oversight. And I'll address now the distribution. So, the distribution is a little bit along the lines of what I said in September. For 2023, the 40 to 50 percent guidance applies. And given the year, right, which, as you see, you know, is a transitionary year, it leads to levels of, you know, potential distribution, which are, you know, obviously lower than in a normal year. And this is why I said that it's going to be an ad hoc decision. of the board at the end of the year when we have the annual books in terms of what the mix will be and what the level will be. Now, in the context of the CMD, I think I also made clear that in terms of our process of building up capital, it would be fair to assume as a central scenario that we would be towards the lower end of the range at the beginning of the trajectory and potentially at the higher end of the range later on. Now, in the end, it's a board decision which will happen in January. Claire on the sensitivity and Philippe on the deposit dynamics.

Regarding the sensitivity to a plus-minus 10 basis points increase or decrease in the interest rates, we have, as I said during the presentation, slightly adjusted our hedges. We consider that we are at a high level of interest rates. So during our ALCO, I mean ARN Committee, chaired by Slavomir, with a or businesses around the table, we made a decision to slightly adjust this, let's say, risk appetite, and we disclosed it in this quarterly presentation. So we have slightly reduced the upside in case of additional rate increase, but slightly decreased also the loss in case of a small decrease in the interest rate. And considering the fact that SAP has been done at market conditions, it does have no significant impact on the accrues, if I refer to the previous question.

Okay, thank you for your question regarding the deposit. So here we have various drivers. The first one regarding corporate, it's yes, we take into account a shift from side deposit to term deposit, and more globally from deposits to, you know, money market funds or in-house treasury deposits. And what is important for us with the corporates is, of course, to monitor closely the situation, not only the deposits themselves, but also the flows, you know, around all activities of cash management. Regarding individuals, the deposits remain very resilient. We've also a shift from site deposit to term deposits, notably for private banking clients. And also, you know, we continue to have a solid increase in our asset under management regarding life insurance. And so basically we take into account the combination of all these elements, keeping in mind that, of course, taking care of the savings of the deposits of our clients, it's critical both for them and for us.

Okay, thanks for the call. Thank you.

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

Hi, thank you. Two questions for me. The first actually, just on NII, but coming back to the 2023 expectation. So I just wanted to understand a bit more in terms of why that expectation has also been revised kind of downwards and if there is any kind of inflation hedge impact there too. And then the second question, just in terms of the capital development in the quarter. So there was the kind of 16 BIPs benefit also from organic RWA development. I just want to check, is that just kind of loan book contraction, or is there any kind of optimization in there? And, you know, if we are to model kind of loan growth going forwards, so would that piece be reversing? Thank you.

All right. Thank you very much. I'll talk about the organic OWA, and I'll leave the floor to Claire on the NII question. So, on the organic growth, it's two things. I mean, you know, it's an important component of our thinking going forward. And so, yes, clearly, We are making sure that we constantly work on optimizing these trends and our consumption of capital in our businesses. But it's also linked with seasonality simply this year. And it's not impossible that we would have a slight growth, let's say a higher growth pace in Q4. But within Q4, the general strategy that we described in the long term with the figures that we provided you with during the CMD with no average organic odd-degree weight growth for most of the businesses outside of Havens and Boursorama. So, that's on capital on the NII, Claire.

Claire Bouchard- So, on the NII, we revised the guidance Not significantly. It's to be fully transparent, slightly above 20%. So it's a mix of impact from the end of the remuneration of the military reserves to some moves in the outstandings and on the level of margins. And as we come closer to the end of the year, we have a clear view on the end of year estimate. So we are more comfortable with disclosing it above 20%, which will not be far from 20%.

Okay, thank you.

The next question is from Pierre Chaudeville with CIC. Please go ahead.

Yes, good morning. Before asking my two questions, I would like to make a remark regarding the quarterly series. I think it would be useful for us to have a subtotal in the French private banking sector a subtotal of French retail and private banking and then insurance it would be much more easier for us and also regarding leasing mobility and consumer credit I don't understand why you don't isolate credit consumer because now you decide to to speak about that. So once again, it would be useful for us because it's a big chunk of the three business which are quite different. My two questions now. The first question related to the insurance business. We can see that casualty is working quite well, but protection is quite stagnant. And I was wondering if you had ambitions regarding protection because it's a segment that works very well actually in France. And it's something maybe you could tell us about your ambitions regarding protection. And it would be also useful if you could... We can't hear you anymore.

And it's not us.

Mr. Chaudhary, your line is open. The next question is from Anke Reingen with RBC. Please go ahead.

Yeah, thank you. I'll be quick and hopefully Pierre can come back. Just on the transformation cost, it would be helpful to be able to see the underlying progress and the cost development. And therefore, could you maybe give us, by division, the transformation cost at the nine-month stage? And do you have any more visibility on transformation costs in 2024? And then just one housekeeping from the Capital Markets Day. In terms of the BASA IV impact, the 85 basis points, can you split it down by division, please? Thank you.

Thank you. I'll leave the floor to Claire on both, but also we can potentially have a follow-up later on with the teams, just not to spend too much time on this, but Claire.

Yeah, I will answer at least to your first question because I'm not sure I have properly heard your second one. So regarding CTA, I understand that you want to break down for a division of the 145 million euros CTA we have this quarter. It's exactly 46 for the French retail, 41 for GDIS, and 58 for... the last pillar of which 48 for ALD. Regarding the full year guidance, so we had guidance this year on around 800 million euros CTA for the year. So we confirmed at that stage this guidance. And regarding 24, it's a little bit early to guide. We had explained during the capital market day, I did so, that a significant part, most of the CTA for the 24 to 26 period of time would be booked in 24. It will be the case that we probably will get more as usual during the last quarter and we never do that during the third quarter.

The second question was the 85 bps of Basel IV impact we discussed.

at cmd purpose yeah so uh at the uh at the uh cnd we had guided on uh um 85 uh uh basis points i'm sorry we do not disclose at that stage the impact per business But what we do is that we disclose the breakdown, the types of impact. And if I may say, when you have the type of impact, it's quite easy to link with the businesses, but that's my personal point of view. So the impact is 40% related to market risk, 45% related to operational risk, and as you know, it's a formula. It's 10% CVA and 5% credit risk. So these things say, I'm quite comfortable potentially in your capability to have the breakdown for business, but we will guide more precisely before the impact.

Okay, thank you. I was looking for the nine-month transformation cost by division, but I follow up with IR to keep this going.

Thank you. Okay, okay. I can give you the nine months. Okay. 330 French retail, 102 GBIS, 195 MBS, of which 168 ALG. Thank you very much. The next question is from Vijay Rajakiri with HSBC. Please go ahead. Yes. Good morning, everyone.

Just the one question left on my side, mainly for Slavomir, I guess. So, look, when you look at the ALD share price, unfortunately, it only seems to move in one direction at the moment. But at what point do you say, look, enough is enough and think about delisting ALD and taking it private again? Clearly, you think it's a great business, but the market doesn't really agree. And, of course, as you've shown in your own numbers, ALD is accretive to your stock chain group. ROE. So why not think about increasing your exposure to that, particularly as you can pick up the minorities now at a chunky discount to book value. So just your thoughts on that, please, Slavomir. Thank you.

Listen, I'm an investment banker, right? So you're describing a financial equation which obviously is theoretically interesting. Now, the reality is in my own view, the long-term prospects for growth, profit generation, ability to be an actor of fundamental transformations of mobility, obviously not just an actor for the sake of it, but in terms of further ability to grow and to generate good profitability are prospects which should be in the long term, in the mid to long term, attractive to potential ALV shareholders or AVENS shareholders. And in this sense, I think, you know, we had that intuition a few years ago to list this company to help it grow. And I think the growth story is still compelling. Right now, we have noise because of the integration. and a number of exceptional items. We have noise because of guidance adjustments, et cetera. It's all fair. But the story is compelling, and it's going to be compelling for ALB events shareholders. And right now, there's no project to change anything in the structure of the group from this perspective.

Very clear. Thank you very much.

The final question is from Jacques-Henri Golar with Kepler-Schöpfer. Please go ahead.

Yes, good morning. I have two, maybe three very quickly. The first one, obviously, these capital markets, they were very humbling for me personally, to be honest, and for the South Side, I guess, also a little bit as a whole in terms of stock price reaction. Did you draw any lessons about what happened there at management level, and can you share it with us? The other two is to come back to what Flora said on ALD and for the forecast. I want to make sure I understand that I should not account for used car sales for lease plan until year-end. Is that correct? And then resume used car sales forecasting in 2024. Is that the right way to look at it? And lastly, on the corporate center, the negative impact from the change in market value of replacement swap, is that recurring next year at all? Is there any way to or it's something we can drop? Thank you very much.

Thank you. Thank you for your questions. I'll start with the one that is for me. I'll leave the floor to Pierre for the events, and then quickly to Claire on your last one. So, I mean, it's not my job to be delivering market commentary on why things happen, et cetera. What I can tell you is I feel and I think that was well understood very strongly together with the team and the board about the roadmap we designed. It's the right one for this company at this point of its history. It's going to make it stronger and more sustainable in the future and delivering levels of reported performance in terms of absolute level and volatility, which will be massive. improvement from our recent track record and from this perspective our objectives i think are very clear and very good for the company and for its long-term long-term shareholders and the means that we decided to use to reach this objective which is a mix of I'm not going to do the CMD again, but of moderate growth in terms of organic RWA, cost reductions, sound capital management, et cetera, are, again, I think the ones we had at our disposal. And we chose a mix between the contribution of everybody, basically the company, the businesses, in terms of cost reductions, et cetera, the shareholders in terms of revenue, some uh minor adjustments to uh distribution policy and i think uh you know it's the right thing to do right and then uh it's our job and it's only fair from the investor community to wait or to see how we're delivering quarter by quarter on our roadmap and to expect from us a high level of high quality delivery right and that's on what we're focused today and uh That's how we think about it, right? And then, you know, market dynamics over one day. I mean, you know, we could discuss all the things that happened in the markets in the recent days. You know, I mean, I'm not sure you can always make sense of the short-term reactions of the market. We are focused on the substance, and we will deliver our roadmap. Thank you. In terms of ALD forecast, Pierre,

Yes, I think the question was about the accounting for profit regarding this plan. So the answer is that yes, until we go to the end of the PPA, you know, the fleet of this plan is going to be accounted for at fair value, and therefore we are not going to account for profit. uh until the end of the year and then progressively uh going forward we will account uh for you you use our state's profits as they occur okay regarding the corporate center we do not guide for next year okay thank you very much so we have pierre back uh so i have the first question uh uh we're ready to hear the second one

So the very last follow-up question is from Pierre Shoulderville with CIC. Please go ahead.

Mr. Shoulderville, we cannot hear you. Maybe your line is on mute.

Mr. Shoulderville, we cannot hear you. Maybe you muted yourself. Please check your microphone.

All right. Let me do the following. First of all, Pierre had two comments or requests. They're well noted, although we have an approach in disclosures, and I'm not sure we're going to change everything. Just based on this request, we'll take notes of it and we'll give it some thought. In terms of your first question, I'll leave the floor to Pierre. Philippe at least you will have the transcript in terms of the protection parts of the insurance business what are our ambitions and expectations so yes so as you know I think we

We can say that life insurance, it's part of our DNA for a long time. That's true that regarding protection, it's still an area where we have room for improvement. And we know that it's very important to provide these products and services to our clients. As mentioned during the capital market days, that's one of our objective to fill the gap because there is a gap in protection equipment. So our insurance company is working in full collaboration with the networks, and I think we have now a complete competitive offering. We have also increased the digitalization of the customer journeys, and we are reinforcing the training efforts of our sales forces. And simultaneously, we are also leveraging the platform of ASU to sell directly this project, you know, to the clients of the network, but also to other clients. So definitely an area when there is a momentum and we should contribute toward trajectory in the coming years for the tending, you know, speed of gap. And again, we are targeting significant progress in this area.

So lots of ambitions and bringing the two businesses together closer was part of addressing the ambitions we have there. Thank you very much. Thank you for joining the call and all your questions. And have a nice afternoon. Bye-bye.