BNP Paribas SA (BNP) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas 2019 Full Year Results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. [Operator Instructions] I would like now to hand the call over to Jean-Laurent Bonnafe, Group Chief Executive Officer. Sir, please go ahead.

Thank you. Good afternoon, ladies and gentlemen. Welcome to BNP Paribas 2019 Results Presentation. Today's presentation will cover the first 3 chapters of the slides presentation, group results, division results and 2020 objectives. First, I will take you through the summary of our group results. Lars Machenil will comment on the results by division, and then I'll update you on our 2020 objectives. As usual, at the end, we'll be pleased to take your questions. So we start with Slide 3. Looking at our 2019 key messages, BNP Paribas delivered a very good overall performance with a strong growth in income, thanks to good business drive and on the back of our transformation process. In more detail, revenues were up 4.9% on last year with each operating division delivering revenue growth. Costs evolved by 2.5% on the back of the continued development of the businesses in IFS, CIB and in the Domestic Markets. They were down in the retail networks. Thus, the group operated with positive jaws in 2019. These jaws delivered in each of the 3 operating divisions. As a consequence, our cost/income ratio improved by 1.7 points. Cost of risk at group level was low at 39 basis points over outstandings. The group's net result stood at EUR 8.2 billion, up 8.6% on 2018, which translates into a dividend payment of EUR 3.10 per share, fully paid in cash as per our 50% payout target. The group is very well capitalized with a fully loaded Common Equity Tier 1 ratio at 12.1% at year-end. Slide 6, you can see that our net result equates to return on tangible equity of 9.8%, up 20 bps on last year. Turning now to the revenues of the operating divisions on Slide 7. You can see that they were up 5.9% on last year and that the 3 -- and there was revenue growth in each of the 3 operating divisions. Domestic Markets showed a 0.8% revenue increase on last year. The increase in business activity in Domestic Markets and a steady growth in specialized businesses were partly offset by the impact of the low interest rate environment. At IFS, our engine of growth, revenues were up 6.9%, thanks to a strong business drive in personal finance and very good performances in the insurance business and Euro-Med retail banking. Lastly, CIB's revenues rose sharply by 11.6% on the back of continued market share gains in Europe with very good performances in global markets and corporate banking. On Slide 8, you can see that costs of our operating divisions were up 3.5% on last year with positive jaws and lower cost/income ratio in each operating division. In Domestic Markets, costs were up just 0.3% on last year. In the retail networks, they decreased by 0.5%, thanks to the ongoing implementation of cost-saving measures and the adaptation of our operating model. In the specialized businesses, they were up as a result of the growth in business activity. Domestic Markets delivered positive jaws in 2019. Both IFS and CIB show cost evolution, reflecting business growth, which were for both largely contained by cost-saving programs. In 2019, IFS operated with positive jaws of 2.4 points or 3.2 points on a like-for-like basis and CIB with 5.5 points. Moving to cost of risk, starting with Slide 9. You can see that at group level, it clocked in at 39 basis points in terms of outstandings at a low level. Looking at the different businesses one at a time. In Corporate Banking, provisions were low in absolute terms and the increase on last year is mainly due to write-backs in 2018. Turning to the other business lines on Slide 10, you can see that cost of risk was low in French retail, very low in Belgian retail and continued to decrease at BNL in Italy. In other retail businesses, Euro-Med cost of risk was up with the trend stabilized in Turkey. BancWest cost of risk was still low. And personal finance saw an increase on the back of higher outstandings, but was fairly stable in basis points. Turning to Slide 11 on the financial structure, you can see that our Common Equity Tier 1 increased by 40 basis points to 12.1% compared to the level of the 1st of January 2019. Our Basel III leverage ratio stood at 4.6% and the group's immediately available liquidity reserve totaled EUR 309 billion at the end of the year. The evolution of these ratios illustrates the very solid financial structure of the group. On Slide 12, you can see that our net book value per share stood at EUR 79 at year-end, up EUR 4.3 on last year. At EUR 69.7, our tangible net book value per share has grown at an annual rate of 7.3% since 2008, highlighting our continued value creation through the cycle. A dividend payment of EUR 3.10 per share fully in cash will be proposed at our Annual General Meeting on the 19th of May. You will find on Slide 13 some key points on the continuous reinforcement of the group's internal control and compliance system. Last but not least, moving to Slide 14, I would like to emphasize the importance of our policy of engagement in society and reiterate ambition to be a global leader in sustainable finance. The group has already taken positions in this area, for example, by stopping the financing of new coal projects in 2017, of being the world's #3 player in the green bond market at the end of 2019. BNP Paribas is the first financier of renewable energy projects in Europe, #3 in Asia Pacific. EUR 47 billion in SRI funds assets are managed by BNP Paribas Asset Management which is #1 in terms of ICR certified assets under management in France. As you can see, our efforts are also recognized through ratings and our presence in the major specialized indices. These engagements are key elements of BNP Paribas company purpose, which was established at the end of 2019. I now hand over to Lars to the divisional results.

Thank you, Jean-Laurent. Fine, ladies and gentlemen, good afternoon from Paris. Before walking you through the divisional results, I would like to highlight that we have changed the layout of our presentation slides. We hope you will welcome them and enjoy this new format. If we turn to Slide 18, and we start with the first of our 3 divisions, Domestic Markets, you can see that it showed good business drive with solid loan growth in the retail networks, in particular, in France and Belgium as well as in the specialized businesses, the Arval, Leasing. Besides, net asset inflows in private banking were up on 2018 at EUR 5.6 billion. When we look at digital transformation, Domestic Markets has continued to support the customers with new client experiences. I'm pleased to say that Domestic Markets has now 9.7 million digital clients and that they are active indeed on our apps and websites. BNP Paribas is again recognized as the leader in France in terms of digital performance. And with Nickel, Domestic Markets has equipped itself with a top 5 player in the European new bank market, with over 1.5 million accounts opened to date. I will provide some additional color on our digital success on Slide 19 in a second. If we look now at the P&L, the revenues were up 0.8%, clocking in at EUR 15.8 billion, with the effect of rising loan volumes across retail networks and specialized business being partly offset by the low rate environment in Europe. Operating costs were marginally higher due to the continued development of the specialized businesses, but were down 0.5% in the retail networks. Thus, Domestic Markets operated with positive jaws in 2019. Given a reduction of cost of risk, in particular, at BNL in Italy, pretax income marked a 3.7% increase, standing at EUR 3.8 billion. If you can now flick to Slide 19, which provides further details of Domestic Markets, successful implementation of digital offerings, you can see that it accelerated its growth in active customers on mobile apps with an increase of 31% in 2019. Besides, mobile usage has continued to increase with 97 million monthly connections on mobile apps. Lastly, Hello bank! continues to prove successful with its target customer segment. In Belgium, for example, 1 in 3 youngsters under the age of 28 is a customer of Hello bank!. If we now turn to Page 20, you can see that Domestic Markets relies on very strong franchises in an integrated model, in particular with leading positions in corporate and private banking, for instance. BNP Paribas is #1 in terms of customer penetration rates with corporates in France and Belgium and #3 in Italy, while we are the largest private banking player in France and Belgium by amount of assets under management and 5th largest in Italy. If we now move forward to Slide 21, where you will see that Domestic Markets continued the transformation of its operating model by rolling out best-in-class customer data management tools, streamlining and digitalizing end-to-end its key customer journeys as well as further automating its processes. To illustrate this, in the last quarter of 2019, robots processed in excess of 700,000 transactions in the Domestic Markets networks. Moreover, the operating division continued adapting its offerings beyond banking services with, for example, the accelerated development of Lyf Pay, an electronic wallet solution, which has seen a sharp rise in downloads in 2019 and the launch of Telepass in Italy, a mobility offering for corporate and individual customers. If we now look at the different businesses in Domestic Markets on Slides 22 to 25, I'd like to highlight, in particular, in French retail banking, loans were up 5.4% on last year, in particularly due to the very active corporate lending activity. Revenues were slightly up, thanks to the rise in net interest income on the back of higher loan volumes and despite a decrease in fees, due in particular to the decrease in charges on fragile customers, which took effect at the beginning of 2019. Thanks to cost-saving measures and the streamlining of the network, costs were slightly down, thus generating a 0.4-point positive jaws effect. Pretax income was slightly down on last year. If we now go to the south, BNL BC showed a slight decrease in revenues due to the impact of the low rate environment and the positioning on clients with a better risk profile. Costs were quasi flat on last year, thanks to the effect of cost-saving measures. Beside, new adaptation measures were launched to further reduce costs this year. With cost of risk down 17.3%, cost to income rose sharply by over 24% compared to 2018. If we now go north, Belgian retail banking, we had good business drive, with loans up 4.4% and a strong rise in our balance sheet savings. Revenues were down 2%, due to the impact of low interest rates, which was only partly offset by the rise in fees. Costs were down 1.6% on the back of cost reduction measures and continuing branch network optimization. Pretax income down 5.1% on last year. Finally, looking at the specialized businesses, which continued to deliver very good business drive, with, in particular, a strong growth of 8.9% in finance fleet at Arval and a rising outstandings of 6.9% at Leasing Solutions. Revenues were up 6.6%. Costs accompanied this growth and were up 4.5% as a result of this development. Thus, the specialized businesses operated with positive jaws and delivered pretax income up 9.5%. To wrap up Domestic Markets, good business drive and a higher pretax income despite persistent headwinds of the low interest rate environment. If you now swipe to Slide 26, you will see that our International Financial Services division, our engine of growth, showed sustained business activity. Outstanding loans were up 8.1% or 5.1% on a like-for-like basis, with good growth, in particular, at personal finance and Europe-Med. And IFS imported good net -- reported good net asset inflows, plus EUR 20.2 billion. Thus, assets under management of the savings and insurance business were up 9.3% on 2018 at slightly over EUR 1.1 trillion. In terms of profit and loss, revenues were up 6.9% or 4.7% on a like-for-like basis. Operating costs evolved 4.5% or 1.5% on a comparable basis, again, on the back of the business development. And this increase of cost is contained by the savings and operating efficiency gains translating into a positive jaws effect of 2.4 points for this division. As a result, IFS pretax income was up 4.5% on 2018. Now if you move to Slide 27, you will see that IFS enjoys leading positions in many of the businesses. For instance, in Personal Finance and Wealth Management, where it ranks #1 in Europe. BNP Paribas Cardif is a global leader in creditor protection insurance. For its growth, IFS continued to rely on partnerships and alliances, like, for example, the new partnership between Personal Finance and leading car manufacturers and retailers, or in the case of insurance, the strategic alliances, for example, with Scotiabank in 4 countries in Latin America. IFS has continued to optimize its services to clients through its digital transformation, as you can see on Slide 28. To illustrate this, IFS has now 3.9 million digital clients across BancWest and its Europe-Med retail networks. Besides, the e-signature is now widely available, for instance, at Personal Finance, where 5.8 million e-signatures were processed in 2019. IFS has carried on developing its digital offering with, for instance, an ever-increasing number of self-care transactions at Personal Finance, representing 85% of total transactions as well as the launch at Cepteteb in Turkey of an app dedicated to SME clients. Furthermore, as described in Slide 29, IFS continues to embrace innovation, which joined initiatives with startups. If we now look at the different businesses within IFS, and we take a look at Slides 30 to 35, I'd like to highlight, in particular, first, Personal Finance continued to show strong business drive in 2019 with a strong increase in loans, thanks to a strong demand in Europe and the impact of new partnerships. Revenues were up 4.8%, and cost increased at a slower pace of 3.3%, thus delivering 1.4 positive jaws effect. Pretax income was down 2.7% on last year, due in particular to a nonrecurring item in one of the associate companies. If we now turn to Europe-Med, we generated revenue growth in all regions, thanks to strong business drive, in particular in Poland and Morocco. Thus, on a like-for-like basis, revenues were up 6.8% while costs rose by 1%, thus generating largely positive jaws. Pretax income rose sharply by 23% versus previous year on a comparable basis. If we stay on constant scope and exchange rate and we look at BancWest, we generated slightly lower revenues on the back of lower interest rates and delivered a decrease in its operating expenses of 3.6%. Cost of risk was up on last year's low base, and pretax income was down 10% on a like-for-like basis. Now turning to insurance. Revenues progressed by 14.5% for the full year, thanks to a favorable market performance and good business drive. Pretax income was up 16% on the previous year or 19% on a like-for-like basis. The last element within IFS is wealth and asset management, revenues were up 1% year-on-year, driven by real estate and a gradual improvement over the year following the difficult market conditions stemming from the financial market turmoil at the end of 2018. Globally, pretax income was up 2%. This completes the review of our second business, and therefore, the total of retail banking and services, and I can now draw your attention to Slide 36 on Corporate and Institutional Banking. CIB managed to pursue its market share gains and strengthen its leading positions on targeted corporate and institutional client bases. CIB ranked 3rd CIB and 1st non-U.S. CIB in EMEA based on revenues generated in the first 9 months of 2019, thus making it the leading European player behind 2 U.S. institutions. If we look at revenues, they rose sharply to EUR 12.1 billion, up 11.6% compared to 2018 with growth in CIB's 3 sub-businesses. Costs were up 6.1% in support of this business growth. The increase in cost was contained by cost efficiency measures, including the development of shared platforms and the continued optimization of processes. Thus, CIB operated with a very positive jaws effect at 5.5 points. Overall, CIB generated EUR 3.2 billion of pretax income, up 19.6% compared to the year before. If we now turn to the next 3 slides, that's 37 to 39, let's look into more detail in the 3 sub-businesses. If we start with Global Markets on Slide 37, revenues were up 17.9%, thanks in particular to a very strong performance in FICC. FICC revenues were indeed up 36%, excluding the effect of the introduction of the Capital Markets platform and, in particular, with a sharp rise in primary markets and credit and a sharp rebound in ForEx and emerging markets. Besides, FICC clinched #1 ranking for all bonds in EMEA and #8 for international issues. If we now look at the second part within global markets, which is the equities, and the revenues were stable in 2019, with a gradual recovery from a low point at the end of 2018 and a good performance in equity derivatives. If we now swipe to the second part of CIB, and that's on Slide 38, with corporate banking revenues were up 9.9% on the previous year. It has become the #1 European player in terms of investment banking transactions in EMEA, thanks in particular to the very good start in early 2019 of the Capital Markets platform. In the Americas and Asia Pacific, Corporate Banking has pursued its business development, in particular, in cross-border transactions. Finally, glancing at Slide 39, with the third part of CIB, Securities Services, where revenues progressed on the back of strong business drive and the positive effects of the implementation of the partnership with Janus Henderson assets in the U.S. If we now take the next slide, which is Slide #40, which summarizes the achievement to date of CIB's digital transformation. The success of digitalized client journeys is evidenced, in particular, by continued client onboarding on the Centric online platform for corporates, which has now over 11,500 clients at the end of 2019. It's, obviously, epitomized by the over 21 million electronic orders processed by global market this year and over 6,000 institutional clients on Securities Services Neolink platform. CIB has also developed new offers to clients in partnership with Fintechs in the 3 of its businesses. It has continued to improve operating efficiency and customer service through automation of processes and ramping up of mutualized platforms and those mutualized platforms, they account for 35% of CIB's workforce. You will see on Slide 41 that CIB has continued to strengthen its leading franchises. For instance, the strengthening of its corporate franchise has relied in Europe on the success of country-specific development plan with, for instance, 260 new large corporate clients having been onboarded in targeted countries since 2016 as well as targeted development in the Americas through incentified cooperation with BancWest and in Asia Pacific, in particular, in trade finance. Furthermore, the agreement with Deutsche Bank in prime brokerage, which has now entered into early stage of the transaction period, will support our ambition with fund manager clients. Lastly, on CIB on Slide 42, we see that CIB continued to foster cross cooperation with other operating divisions, capitalizing on the close relationship, enhanced by the integrated model of BNP Paribas with, for example, joint initiatives in transaction banking as well as CIB solutions marketed to major domestic markets and IFS clients. In addition, more than EUR 2.8 billion of annual revenues are generated by Domestic Markets and IFS for the scope of clients covered by CIB. So this concludes the review of the 3 divisions' results. I now hand it back to Jean-Laurent for the last part of the presentation.

Thank you, Lars. Let's now look at the last part of today's presentation, our 2020 objectives. On Slide 44, you can see that the adjustment of monetary policies in the summer of 2019 led to less favorable interest rates environment that anticipated at the beginning of 2019. This is impacting revenues related to interest-bearing products in the Eurozone network banks. Nevertheless, according to the IMF forecast, economic growth for 2020 should be well oriented in the Eurozone and in emerging markets, with a slight slowdown in the United States. In this environment, BNP Paribas anticipates continuing to deliver growth in all divisions, thanks to its diversified and integrated model, strong business drive and intensified cooperation business -- between businesses. Turning to Slide 45, let's review the growth drivers of our operating divisions. Domestic Markets, we continue to leverage its leading positions in specialized businesses and in the corporate and private banking customer segments with further developing innovative digital offerings to acquire new customers and support evolving usages. IFS forecasts to pursue growth by leveraging its best-in-class offerings, platforms, distribution partnerships and networks. As for CIB, it is anticipated to continue to leverage its leading market positions to further gain market share in Europe and globally in the corporate and institutional client segments. Switching to the objectives of each operating division on Slide 46. You will see that the activities anticipated to continue to grow in all the divisions on the back of strong business drive, strengthening of franchises and development of cooperation between businesses. In addition, they should benefit from the full contribution of the transformation plan in terms of efficiency and new opportunities. For Domestic Markets, 2020 is expected to be a year of pressure on the net interest income of the Eurozone retail networks, which should result in a moderate decrease in revenues as the impact of interest rates is expected to somewhat outweigh the increased businesses in all client bases and the strong growth in specialized businesses. Costs are anticipated to decrease, thus generating natural jaws effect this year. For IFS, we foresee revenue growth in all businesses, thanks to the strong business drive and the development of existing and new partnerships. With costs anticipated to evolve at a slower pace, we expect IFS to continue to deliver a positive jaws effect. Lastly, we forecast CIB to continue to grow its revenues, sustained by market share gains, including through intensified cooperation with other businesses in the group. With costs reflecting the continued business growth with reaping the benefits of the transformation, we foresee that CIB will continue to operate with positive jaws. In [ total ], on the back of continuous business development, full contribution of its transformation plan, the group forecasts a continued growth in revenues and a decrease in operating expenses, delivering a positive jaws effect. The outlook is that the group should once again increase its net income in 2020. On Slide 47, you can see the update on cost savings resulting from our transformation plan. To date, we have achieved EUR 1.8 billion of recurring cost savings, and as planned, these recurring cost savings should reach EUR 3.3 billion by the end of 2020. As a matter of fact, EUR 1.5 billion of additional cost savings are expected for 2020. With respect to one-off transformation costs, they reached EUR 0.7 billion in 2019, in line with target. As indicated, there will be no transformation costs in 2020. If you flick to Slide 48, you can see that our transformation resulted in 47% of our office space in the Paris metropolitan area, being now earmarked as flex office. Accordingly, we're in a position to adjust our portfolio office buildings. Around EUR 500 million capital gains expected from the sale of such properties this year. On another note, the group envisions exceptional cost up to EUR 200 million for the reinforcement of our IT system and EUR 200 million for restructuring and adaptation measures, which will give us more flexibility and opportunities to adapt to the evolving context. If you advance to Slide 49, you will see that BNP Paribas capital generation is regular and solid. The average growth in our core Tier 1 ratio has reached 35 basis points per year over the period from 2014 to 2019. The target announced in 2017 to reach a 12% core equity Tier 1 by the end of 2020 was already achieved in 2019, moreover 12.1% at the end of December 2019, our core Tier 1 ratio is well above the request notified to us as part of the SREP. Switching to Slide 50, you will see that BNP Paribas is well positioned to face the finalization of Basel III, which is, as you know, in the process of being transformed in the European Union law. The European authorities reminded that this transposition is not expected to significantly increase the requirements for the banking industry taken as a whole. So it's very probable that the exemptions decided during the vote of the CRD5 will be maintained. With this assumption, and to the extent necessary by taking management actions, BNP Paribas deems that it will limit to 10% the inflation of its risk weight as a result of this transposition. Facing this inflation, BNP Paribas is favorably positioned taking into consideration: Firstly, a core equity Tier 1 ratio well above current requests as notified as part of the SREP; secondly, a regular and solid capital generation of 35 bps on average in the past years. The expected adjustment with respect to Pillar 2, starting with the application of the Article 104a of CRD5, authorizing the partial coverage of P2R by hybrid securities, AT1 and T2, and no longer by Common Equity Tier 1 and then the announced recalibration of the Pillar 2 requests. Turning to Slide 51, you will find a summary of the group's objectives for 2020 to conclude this presentation. We forecast a continued growth of our businesses in all operating divisions, leveraging our diversified and integrated model, while reinforcing our franchises, in particular, for CIB, which should continuously strengthen its European leadership. This growth will be accompanied by the reinforcement of our leadership in sustainable finance, thus pursuing our policy of engagement in the society. Furthermore, the group should continue to benefit for the 2020 transformation plan and cost-saving measures, resulting in a decrease of operating expenses in absolute terms and positive jaws effect. On this basis, we expect the return on tangible equity to further improve to a level of 10% in 2020. Lastly, our objective of 50% dividend payout ratio in cash remains unchanged. This concludes today's presentation. As a takeaway, I would like to -- you to keep in mind the very good overall performance of the group with a net income at EUR 8.2 billion, up 8.6% on 2018; positive jaws effect; and decrease of the cost/income ratio; the core equity Tier 1 ratio at 12.1% at year-end and a good positioning for the finalization of Basel III; the success of our transformation; our good business drive; and the strength of our franchises. Ladies and gentlemen, I thank you for your attention. And together with Lars, we'll now be pleased to take your questions.

[Operator Instructions] Your first question from Jean-Francois Neuez from Goldman Sachs.

I just wanted to ask 2 quick things. The first one is, could you update us on the progress of the integration of the Deutsche Bank platform for the CIB prime brokerage unit? And give us a sense of what your balances are and how many you've taken on since the final -- since the announcement? So essentially to understand how much there to come versus how much is already in. And the second thing I wanted to ask you is, on your Slide 50, essentially, what this boils down to is that if you take into account your own capital generation and your risk-weighted asset inflation, you will essentially be at 12% core Tier 1 capital by 2023 when Basel IV is fully loaded -- if you fully load the 10% of risk-weighted assets. At that stage, I guess, if you then say that the Pillar 2 might be filled in with also different bucket or potentially be revised, I suppose, down, the question from there is, if you don't no longer need to build capital as well as if you have a bigger MDA buffer, what happens to the capital distribution policy? Is there a scope for BNP to increase this from its current level?

So on the Deutsche Bank transaction, we're proceeding very swiftly and we are very much in line with the original plan, and balances are slightly moving up. So fair enough, we're on track. Looking at capital, you got it right. Slide 50 is very clear. On one side, you have 3 elements and those 3 elements, I would say, are going to more than compensate the increase in the Basel III requirements. But what will happen to kind of excess capital generation to be understood, and this is part of the next plan. The purpose of the slide is to explain in a very clear way that this is our situation. And looking at -- and this is quite recent because the stance at the European level, looking at, I would say, exemptions, keeping exemptions is quite recent. I mean, it became very clear last autumn, and the stance of the supervisor, the SSM regarding, for example, the P2R, even the P2 is also quite recent. So factoring those 2 quite new elements, yes, you are quite right, there is room for free equity. But the answer to the question is part of the next plan. But it's a nice -- I would say, it's a nice information that we are giving the market today in that respect.

Next question from Jon Peace from Crédit Suisse.

My first question is just to clarify the last one, in terms of how you manage your CET1 over the next few years. Do you intend to let it rise to about 13% on a Basel III basis by 2023 so that when the RWA inflation comes in, you're still at 12% under Basel IV? Or are you happy to run it to a lower number accepting the fact that Pillar 2R can include some AT1 and maybe Pillar 2 gets recalibrated? And then my second question is about the lowering of the ROTE target for 2020 from EUR 10.5 million to EUR 10 million. How much of that is due to slower revenue growth, where I think you had recalibrated to a 1.5% CAGR under the existing plan? And how much of it is due to carrying a higher capital level in anticipation of Basel IV?

There is no plan to continue to move up the ratio. But again, it's too early to say, with all the details, what will happen next year, '21, '22, '23. So we just want to make that point that having heard, I would say, the comment on the European level, having received some additional comments from the SSM, it becomes very clear that not only we can counterbalance Basel III finalization, but there is room to maneuver. Then how we will manage that to be understood, and it will very much depend on the way those 2 bodies, the European level and the SSM, will ultimately decide to, I would say -- will decide to what they will implement the Basel III packaging with all the details. So to be understood, but what is very clear is that what we have already in our hands is strong enough to more than counterbalance this effect. So is it going -- the ratio going up? We don't know, not necessarily. It would very much depend on the way the regulator supervisor will manage the situation. But some free capital generation will be, I would say, available, which is, looking ahead, quite a strong difference compared to the 2020 plan. In the 2020 plan, we were building what was considered relevant, and then there is a new period in which we are in a different situation. Looking at the return on tangible equity, partly it's due to the fact that, yes, we have accumulated equity during '19. So on average, the basis on which we are computing the ratio next year is bigger, larger than the basis we have had in '19. The other part is obviously the impact of very low rates in the Domestic Market. So if you look at the company in 2020, we are very much in line with what we said last year, beginning of '19. The major difference is very much the impact of the low rate environment.

Next question from Lorraine Quoirez from UBS.

Just a few questions for me. The first one will be on CIB. I would like to know whether when you reviewed the targets, you have actually reviewed upwards your 2020 revenue target for the CIB since last February? And if yes, is this purely due to the recent agreement with Deutsche Bank or are there any other reasons for that? The other thing I'd like to know is, what did you assume on foreign exchange when setting your new targets? And finally, on BNL, it would be helpful if you could quantify the one-off in the top line, please?

So looking at CIB, this is a purely organic growth rate. As of today, we do not have any impact coming from the Deutsche Bank transaction. And we are not factoring in that -- any impact. So this is purely organic growth. Around BNL, Lars, if you want to...

Yes, there is a series of smaller elements that flattered a bit the results. These are elements that we do not clarify. It's a series of smaller elements. And on the ForEx, basically, when we look into the year 2020, we assume that it is stable to what we have now. So we don't take any positive or any effect actually for ForEx evolution. Lorraine, that will be our answers.

Next question from Delphine Lee from JPMorgan.

First of all, I just wanted to come back to your outlook on Domestic Markets being down. If you could just give us a little bit of color by country, if possible, just because when you look at the performance in 2019 has been quite resilient and, obviously, rates expectations have changed, but if you could just give us a little bit more color by country, that would be helpful. And secondly, if you don't mind, just so we understand a little bit the impact of low rates. If you could just remind us the sensitivity to lower interest rates on a 3-year basis for each year, if that's okay? And then lastly, just to come back on your capital management, so is it -- do we understand that you would be happy to run on the Basel IV with a CET1 below 12%? And what level would you feel comfortable about?

Again, the last point, we tried to answer, it was raised previously, so too early to say. We need very much to wait for the last details. But in absolute terms, we are entering next year in a different, I would say, cycle in which additional requirements will be more than, I would say, counterbalanced by capital generation, the initial position that gives us with some room to maneuver. And that's it. So we'll give you in the next plan the full detail. But in absolute terms, yes, there is, I would say, kind of capital generation that is free, again to be understand the purpose. Looking at Domestic Market, the sensitivity is very simple. What we tend to say, this is, I would say, the order of magnitude a drop of 50 bps as EUR 100 million impact the first year, EUR 400 million the second, EUR 700 million the third one. So if it's 100 bps, it's EUR 200 million, EUR 800 million and EUR 1.4 billion. So the difference in between -- if you assume the impact took place in '19 mid-year, the dropping by 100 bps, you would assume that in '20, the impact is in the excess of EUR 500 million. The 2 most impacted geographies are France and Belgium. And the geography that is slightly less impacted, this is very much linked to the deposit base of the bank is BNL. So you have to factor that -- the impact comparing '20 to '19 is in the order of magnitude of EUR 500 million, which basically is 3% of the total revenue base of domestic market. And this is slightly more looking at Belgium and France and slightly less looking at BNL.

Delphine, these are our answers.

Next question from Azzurra Guelfi from Citi.

Couple of questions on French retail. Could you update us on the progress on the cost reduction there? And how do you find that relative to the other Domestic Market where we have seen already some progress there? And following still on the Domestic Market in France, the loan growth is very solid. But if we look at the industry data, it seems to point that there is an expectation that there could be a slowdown in the volume in France in the demand. What do you see on the ground? And what are your expectation there? And quickly on the BNL, the cost of risk expectation for 2020 of 50 basis point guidance, is it confirmed?

So on BNL, yes, we should be 50 points lower. And looking at the French retail, the cost base went down by 0.2% this year. We will deliver better result in that respect this year in 2020. This is for sure. And this is why, ultimately, looking at Domestic Market, if you consider that you have this large impact coming from low rate environment compensated by better action on cost and, I would say, the growth of the commercial business. Ultimately, you end up with a negative evolution of the top line but limited. Looking at the mortgage, the volumes, the evolution in the French market, we are not typically the bank in France that is very, I would say, very linked to the evolution of the mortgage business. We are more kind of private bank, commercial bank, corporate bank affluent type of platform. So this impact that can always take place will not impact that much the French retail.

Those are our answers.

Next question from Jacques-Henri Gaulard from Kepler Cheuvreux.

First of all, congrats for the guidance and capital because you said that last year, that's super clear. One very, very, very last thing. Does that include the impact of the output floor as well that would happen post 2023 because some banks tend to give you a season 1 and a season 2 of Basel IV? And the second question, when do you think you will be able to quantify climate risk, particularly on the stranded assets? I know it's very complicated in terms of disclosure, and we don't ask you to give you any number, but it's more a matter of time line of where you would be able to give some precise figure on this.

The first question, everything is being computed. So we're not disclosing kind of Basel III without the floor. I mean, it's covered by the computation, of course. It would not be very fair just to give the impact away from the floor. I mean, so everything is included. Climate change, we are already in that process. I mean, we have already changed the bank approach in a number of sectors or subsectors. We have closed down some businesses. So there will be an impact, but this is already covered by, I would say, the current strategic plan, and we believe it's going to be progressive. But we have also to factor the fact that there will be new sectors, new industries, new company, new technologies. And most probably, those banks that started first in that respect are going to have additional market share in those new areas. If you look at us, we're globally worldwide #3 for green bonds. We're the leading bank for renewable in Europe and so on and so on. So the banks that started first will have larger market shares in those new, I would say, sectors, economies approaches. So even it's very difficult to compute, we don't believe that ultimately this will change, I would say, the growth long term of the company because in a way or another you will have to provide new energy, you will have to provide new sectors, you will have to provide new goods, new ways of, I would say, moving the economy. So it's more a question of rebalancing the business of the bank, and it can only be done in a progressive way, knowing that, of course, it's better to start in advance than to be the last one in the process. And again, if you look at those 2 positions, #3 globally in green bonds and #1 in renewable in Europe, are good, I would say, measures of the situation we are already in. So good evidence that we're already benefiting from that transformation.

Jacques-Henri, that will be our answers.

Next question from Kiri Vijayarajah from HSBC.

A couple of questions on CIB, if I may. So firstly, will you -- how active were you on the securitization front in CIB? Your slides really only talk about the full year and more just the fourth quarter, you're running about 5 bps capital release per quarter that you've previously targeted. And then secondly, just some background on the EUR 100 million restructuring charge in prime brokerage. Really what's driving that? Is it from taking on the Deutsche Bank platform you've had to write-off your pre-existing IT in the prime brokerage area? The reason I ask is, when that deal, Deutsche Bank deal was announced, it was supposed to be quite a clean transaction where you sort of avoid restructuring costs. So just curious as to what's driving that in prime brokerage, please?

All right. On your questions. Yes, the CIB or the securitization in general because it's indeed our CIB who performs it to the securitization is done on assets, which are wider than that where at the beginning of 2019 there was basically a blocking because there was clarity needed by the supervisors. So they were not done. Since the summer, we found back the normal rhythm of doing. So that's the rhythm at which we are. And then when it comes to your question on prime brokerage, so yes, if you look at the adaptation of restructuring cost that we have, you typically always have some of those related on the transactions that you do. It can be relating to mergers. It can be related to software. It can be related to several things. So we do not give more guidance, but it is part of the overall costs of the integration that we had foreseen.

Next question from Flora Benhakoun from Deutsche Bank.

The first question is regarding capital again, but this time on the TRIM guidance that you had provided. I think you have been saying so far that you are expecting probably around 20 basis points. So I was wondering if there was anything new that came up during the quarter if you maintain that guidance, and if you had some more portfolios review that gives you maybe a better visibility and better confidence in that guidance. The second question is regarding the insurance business, where the revenues were a bit weaker this quarter than the usual run rate. So I was wondering if this is linked to some further provisioning that you would have done on the PPE reserve. And therefore, if you could maybe give us even a number for the PPE reserve and the Solvency II ratio?

Yes. Flora, thank you for your questions. When it comes to the TRIM, as we said in the past, I mean, we have no idea of what the results would be, right? It is not an objective that, that has to be attained. But we said that it could be around like up to 20 basis points. In the meantime, several evaluations have been performed by the supervisors. So on market risk, on credit risk, counterparty risk, and as we said, there's basically the impact has been very limited. Nevertheless, there is still what is still ongoing is the low-risk portfolio. Now that is a less statistical kind of review. So I have to repeat that the guidance we have is the impact of 20 basis points. It could be less, it could be more. That is what there is to say about TRIM. When it comes about insurance, indeed, like every quarter, we review the provisions we are taking. In particular, at year-end, we took a prudent stance in particular to some of the activities we have, for example, in LATAM. So we basically stepped that up. We're seeing some of those countries. We observed some risks around social crisis. And that is basically what we provisioned for. So it's a onetime on the stock, right? It's not something you have to assume that it's happening quarter-over-quarter. And it's -- we are prudent, in particularly, on LATAM. And as I said, it's not to be done times 4. It's basically the stock which has been aligned. So Flora, those would be my 2 answers.

Any comment on the Solvency II ratio?

I'll invite you to come back when it's going to be published a bit later. In the end, you do know that we are provisioning on Solvency as well. So there is no concern on that.

Next question from Stefan Stalmann from Autonomous Research.

I have 2 questions, please. The first one also relates to the insurance business. There seems to be bit of an evolving debate, starting with one of your friendly competitors in Italy about how to treat the Tier 2 investments of the bank into the insurance business as a deduction from Tier 2 capital or as a 370% risk-weighted position under the Danish compromise. Could you maybe tell us how you're currently doing this and how large your amounts of Tier 2 investments are into Cardif? And the second point relates to, I guess, the topic of negative interest rates and what your intentions are to pass on negative interest rates to your depositors, in particular, in France and Belgium? If you could maybe talk a little bit about what you have done so far and how much potential you see for that going forward?

So on that last point, we are just looking at the situation on a case-by-case basis and only for counterparts that are, I would say, depositing regularly, let's say, more than EUR 100 million. So this is very much the approach we have. We do not intend to charge, I would say, retail customers or SMEs and so on. So this is very much the stance we have looking at situations that are really large, important, basically above EUR 100 million sometimes slightly below, but this is really a case-by-case situation analysis, looking also the global portfolio of business we might derive from a certain counterpart. On insurance, there are so many ways to compute everything. And this is very much linked to the way the local regulator and this is not at the open level that this is being handled. So it's very difficult to answer to your question and to compare because basically we don't know how it's being done in Italy. But Lars can comment maybe...

No, indeed, it is -- the financial conglomerate is a complex regulation and there are several triggers that can move you in one or the other. So it can evolve. For us at BNP Paribas, it has been stable the way it's handled and just to position it. I mean, even if the total Danish compromise would go away for us, that would be an impact of 10 basis points on the common equity Tier 1. So we'll leave it at that, Stefan.

You could not share with us the current investment of Tier 2 capital into the insurance entity.

It's a thing on top of that where we invest intra-group and not an intra-group is eliminated. So I'll leave it to that, but I think the total impact is 10 basis points.