BNP Paribas SA (BNP) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas Second Quarter 2023 Results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. [Operator Instructions]. I would now like to hand the conference over to Lars Machenil, Group Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Hello, everyone. I trust you are doing well, and welcome to BNP Paribas second quarter results. Today, I'm thrilled to share with you the very solid results as a further illustration of the strength of BNP Paribas unique model. Indeed, the second quarter results show BNP Paribas' ability to deliver above-average growth in very different environments, supported by businesses and leading platforms. And always, with the same obsession, serving clients, partners and the economy throughout the cycle, being pertinent, disciplined, long-term and ambitious. It resulted in a significant organic growth, more than offsetting the impact of the sale of Bank of the West in the second quarter, as you had already seen in the first quarter. It nurtures our long-term performance while more than supporting our 2023 trajectory and strong ability to create value for shareholders. The group confirms the robust trajectory of the distributable income for 2023 and is very well on track to deliver its ambitious targets with a significant increase in earnings per share and return to shareholders. We also confirm that we just received the authorization from the ECB for the second EUR 2.5 billion tranche of our share buyback program. It will be launched in the days following the completion of the first 1 being beginning August. Moreover, during this call, I will detail the levers that deliver a double-digit bottom line growth and a related EPS growth of 17%. This, as we already bought 3.5% of our market cap in the second quarter. And so this EPS growth would even be 25% following the second share buyback tranche that I just mentioned that will start beginning of August. So with this, let's start on Slide 3 and our key messages. Revenues increased by 3.3% year-on-year when excluding exceptional items, which are particularly elevated this quarter as a result of exogenous events. This growth is reported by the balance of our model and the performance of all our operating divisions, which are themselves diversified, not only diversified, but also fully integrated with -- as an example, almost 30% of our revenues driven by our unique ability to cross-sell in between. If we look at the divisions, CIB demonstrated perfectly the effectiveness of this model, which combined with a change of scale resulted in quality stable revenues compared to a high base last year on a like-for-like basis. Later on, in the presentation, we will see that if we had cost and cost of risk and look at pretax income, CIB is up 5%. If we go back to revenues and we look at CPBS, delivering a steady 3.5% growth while EPS grew by 0.8% on a like-for-like basis. As expected, the growth is disciplined and operating expenses are well contained and increased by only 1%, generating an intrinsic positive jaws effect of 2.3 points. Moreover, the group continues to benefit from its long-term, prudent, proactive risk management, as demonstrated by a cost of risk that stood and remained at a low level of 31 basis points well below our guidance of less than 40 basis points. Furthermore, our financial structure remains solid with the group CET1 ratio at 13.6%. The increase in bottom line is strong. Our net income grew by 16.4% versus a year ago, excluding the items and Bank of the West contribution in 2022. In addition, and as it was the case in the first quarter, if you add back the contribution of Bank of the West in the second quarter a year ago, second quarter earnings this year are still significantly higher. So I repeat, organic growth more than offset the impact of the sale of Bank of the West. As a consequence of this strong performance and applying the adjustments we committed to, our distributable net income clocked in at EUR 3.3 billion in the second quarter. As you know, this is a fair representation of our intrinsic performance and the basis for our distribution. The related earnings per share clocked in at EUR 4.72, almost 17%, 1-7 percent, above last year. So what else can I say? These results are solid bedrocks on which we will achieve the 2023 objectives of growth in distributable income, EPS, DPS. And hence, we confirm that we anticipate the distributable net income for 2023, at least EUR 1 billion above 2022 results as reported. It adds at least EUR 1 billion above EUR 10.2 billion. If we now turn the page and look at the exceptional and extraordinary items in the boxes that you see on Slide 4. As you can see, these items are particularly elevated this quarter as a result of exogenous events. Let's be clear, these elements are no litter, but aim to clarify the underlying results as the base for distributable income. As expected, you will also find a similar extraordinary impact for the first quarter resulting from the adjustments of hedges related to the changes in the ECB terms and conditions of the TLTRO applied end of last year, a negative extraordinary item booked in Corporate Center and excluded from the distributable income. If we now move to Slide 5 with our full P&L providing details of the key items. So again, exceptional. Exceptional, including extraordinary items, are particularly elevated this quarter as a result of the exogenous events mentioned and it indeed introduced some noise in the reading of our results. So what is the right KPI to measure the intrinsic performance of the group this quarter. First, if you exclude exceptional and extraordinary items, what you can see is that the group net income in the second quarter 2023 is 16.4% higher than in the second quarter 2022, a powerful indicator of the group's intrinsic performance, driven by a strong growth in revenue, but also positive jaws and cost of risk at a low level. Basically, you will draw exactly the same conclusions if you only remove the extraordinary impact of the adjustment in hedges we had to do given the ECB's decision on TLTRO. And indeed, at EUR 3.3 billion the distributable net income, which is the basis for shareholder return is still 10.2% higher than in the second quarter 2022. And maybe to conclude on this let me mention our return on tangible equity standing at 13.6%. If we move on, and please slide to Slide 6. I take it, the messages jump off this page. Basically, since 2018, our net result has grown organically by a solid 36.7%, excluding exceptional items, illustrating our continued growth in all environments. As I used to say, we're not a one-trick pony, which you can clearly see. So it is the result of the effectiveness of our model and our strategy on a long-term basis. It is also attributed to the continuous development of our group benefiting from an acceleration in growth on the back of a change of scale resulting from the different initiatives we have launched and implemented to continue to grow our unique client franchise and platform. If we move on to Slide 7, we have selected key KPIs that are at the core of our disciplined growth and long-term vision. If we look at them first, and this has been a while with us and will remain one. It's a long-standing feature of BNP Paribas and the balance of our capital allocation and diversification. Basically 3/3, 1/3 for CIB, 1/3 for commercial and personal banking and 1/3 for our specialized businesses in CPBS as well as IPS. It results in a solid resilience but also reflects our ability to capture growth and serve clients increasing our market share, penetration rates and cross-sell revenues with clients and partners that are the best positioned in their sectors and geographies. So that's the first. Second, you see the steady progress of our ROTE over the recent years, is a clear sign of our profitable growth strengthened over the years. And third, to illustrate how important is risk management and risk appetite management for the group a graph at the right that we like, evidencing that the group has 1 of the lowest level of cost of risk over gross operating income, so gross operating income, revenues minus costs, and it's through the cycle compared to Eurozone peers. This maintained a disciplined balance between risk and growth is at the core of what we do and the way we develop our businesses. It is 1 of the levers of our resilience, but it is also, as demonstrated in the past years, one of the reasons sustaining the acceleration of our growth when opportunities appear. Finally, we would not have completed tour. If we did not mention the opportunities given by the redeployment of the proceeds of the sale of Bank of the West, which puts us in a unique position to step up our long-term value creation and growth should it be through organic or bolt-on acquisitions. If we swipe to Slide 8, and we focus on the revenues of the operating divisions. A good set of results for CIB, thanks to its diversification. It is indeed attribute to what makes our CIB special. Long term an in-depth relationship with our clients and the back of a full cover of their needs, with balanced businesses and leading platforms that build those strong client franchises. As a consequence, CIB's revenues were quasi stable supported by the strong rise in Global Banking revenues, up 17% on a like-for-like basis as well as an increase -- a continued increase in security services. As a result of a more back-to-normal activity and particularly on macro products, global markets were down 11% on a like-for-like basis versus a high base a year ago. But still 32% increase when compared to the second quarter 2018 as an illustration of our new dimension in that space. I will come back to market share gains later on. If we now turn to the second division, we see very positive momentum for CPBS with a sharp 3.5% increase like-for-like basis, driven by the strong performance of Commercial and Private Banking in the Eurozone boosted by the rise in net interest revenue. Also, a solid increase in revenues for specialized businesses, with Arval and Leasing Solutions, up 17%, witnessing healthy growth in volumes as well as maintained high level of contribution related to used car prices, less of a favorable environment for Europe-Med and Personal Finance. The third division, IPS, delivered an increase in revenues of 0.8%, facing contrasted environment dynamics, combining a strong increase in insurance, 9.9%; and wealth management businesses which have been offset by a more challenging environment for real estate. If you now flip to Slide 9 and look at the operating divisions and the costs, and they delivered a positive jaws effect, use operating divisions of 0.7 points, which demonstrate that costs are well under control, benefiting from our industrialized and mutualized platforms, but also from a very disciplined approach as illustrated by cost almost stable in the operating divisions when compared to a year ago. In that context, CPBS delivered very positive jaws, 3 points thanks to the ongoing rationalization of our operating model and continuous cost saving measures. Operating expenses were down 1.7% in Commercial and Personal Banking with a very positive jaws effect of 3.5 points. They were up by 4.5% in the specialized businesses, which continue to invest in their development initiatives, and as you can see in the evolution of their revenues. The second, if we look at CIB, operating expenses were down 1.1% with a very positive jaws effect for Global Banking, shy of 14 points and lower costs at Global Markets. At IPS, an increase in operating expenses by 2%, supporting the targeted investments and business growth that, that division is pursuing. And in particular, if you look at the positive jaws, you can see them clearly in insurance and wealth management. If we now go to Slide 10. As you know, optimization of our setup and cost discipline are at the heart of our growth plan. This is what you can see on this Slide 10. In particular, leveraging our internal platforms is a key priority to better allocate resources and further mutualize technological offers. The objective is a 25% increase in resources in the main shared service centers between 21% and 25%, 25% increase. If I put this in numbers, it basically means an increase of 5,000 FTEs. 70%, 7-0 percent, of this objective is already reached which shows the pace of our adaptation to the environment. In addition, we adapt our premises and office space to integrate new work usage lowering our mutualization ratio down to 0.75 through flex offices and fewer intercity locations. We have also reduced the number of branches by more than 6% and since 2021. Last, we are ensuring a strong discipline on investments with a proactive management of in particular, external spending. All these levers have brought more operational efficiencies. And as a result, our recurring savings have been revised earlier by an extra EUR 300 million so leading up to EUR 2.3 billion of reductions over the plan. And this will support our ability to deliver positive jaws each year in combination with the end of the ramp-up of the single resolution fund, representing a decrease of EUR 0.8 billion in operating expenses between EUR 23 million and EUR 24 million. If we now look at the risk profile and we turn to Page 11. While you can see that thanks to our prudent risk management, our cost of risk has been low over a long period below our planned guidance of 40 basis points in 2017, except for the year 2020 when we had an exceptional level of ex-ante provisioning to the stages 1 and 2. Another powerful illustration is our capacity to significantly grow our global market activities with the level of VaR almost unchanged in absolute amounts. It is a way to confirm that our CIB has grown in a disciplined way, still maintaining a very prudent and proactive approach in terms of risk management. It demonstrates as well how a disciplined change of scale can indeed improve our risk profile. Finally, we like to stress out pretty high stock of stages 1 and 2 provisions covering 2x our cost of risk on nonperforming loans as another evidence of our prudent risk attitude. If we now focus on the second quarter, you can see the confirmation of a low cost of risk at 31 basis points at group level because of: one, low impairments on defaulted assets, the so-called stage 3 provisions and two, a limited release in the ex-ante provisioning. If we now move to each of the businesses on Slides 12 and 13, you will see a similar pattern of low levels of cost of risk across the board. So if you allow we skip those 2, you can peruse them at your own time, and let's turn to Slide 14 on the financial structure. You can see our stable CET1 refill clocking in at 13.6%. So if you look at the dynamics, organic capital generation through reported net income after setting aside 60% of our distributable results net of the evolution in our risk-weighted assets had a 10 basis points positive impact this quarter. This 10 basis point was offset by the effect of new partnerships for Personal Finance that stepped up the volumes for the amount of 10 basis points. All other effects had limited impact on the common equity Tier 1. As there is a whole tier of metrics, there is also the leverage ratio. It clocked in at 4.5%, well above the requirement. Our liquidity profile at the end of this quarter stands pretty high with an LCR at 143% end of period, increasing by 4 points compared to end of the first quarter. Expressed in another way, the level of our liquidity buffered HQLA amounted to EUR 404 billion, out of which 70% in deposits at central banks or even another way, our liquidity reserve is a whopping EUR 473 billion and includes EUR 286 billion of central bank deposits. So all is fine. Let's move on. Slide 15. And you can see how strong and deeply ingrained our value creation model is. If you look first, a continued growth of our net tangible book value per share in all environments year after year, reaching EUR 83.8 as of the end of June, as I said, up every year and up 29% versus 2018. This growth is even amplified when translating it into earnings per share with an outstanding EPS growth of 56% since the first half of 2018. It has almost doubling the tangible equity per share growth. And then there is a third one, which even further amplifies is the increased ordinary payout ratio now at 60% and significant share buyback program executed for the equivalent of 7% of our market cap in '23. Hence, if you take all that, a tremendous increase of the amount to be distributed to shareholders, up 63% over the period to reach EUR 3.5 billion for the first semester of 2023. As a finisher, allow me to conclude that we are happy to confirm that we just received the authorization for the second $2.5 billion tranche of our '23 share buyback. And as I said at the beginning, we will launch it as soon as the first 1 is finished, which should be in the next few days. So this is the G part of GTS. So we have the GTS plan '25. We talked about G growth. And let's now go to Slide 16 on the T, the technology and indeed investing in technology to support operational performance, but also innovation and growth is a top priority. Our disciplined investment strategy is built on 3 major pillars, and these are not just buzzwords. Let's look at them. Number one, we intensively deploy artificial intelligence, leveraging our own resources and advanced platforms while intensifying partnering with deep tech companies. So more than 700 use cases have been rolled out with the intention to create significant value by 2025 of more than EUR 500 million per year. We have also identified 100 use cases for generative artificial intelligent experiment with large language models used, for example, by ChatGPT Or Bard. They will increase the scope of usage of AI but always on the basis of strong standards in terms of security. So that's the first. Second, an open information system. Our successful IT marketplace offering close to 300 IT products to share internally, combined with the APIization, which is also broadly adopted. It brings interoperability and rationalization with more than 800 APIs available sustaining more than 620 million transactions every month. Third, a safer and more resilient IT. Here comes the cloud with the objective to embark more than 60%, 6-0, of our apps by 2025, we are currently at 42%. And last but not least, these developments make us a leader in the industry, attracting high-end AI and IT profiles. Another evidence is our number of partnerships with startups. If we continue and contributing to a responsible and sustainable economy is another major foundation of our plant, so basically the S in GTS. And this is what you can see on Slide 17 and 18. As the largest Eurozone bank, we believe in our responsibility to redirect financing towards low carbon projects with the aim of contributing to a net 0 economy by 2050. For more than a decade, we have been deploying very significant resources and efforts for the energy transition, as you can see on Slide 16. These actions, these decisions over the last 12 years with an acceleration in '22 and '23 are evidencing our clear ambition to support the advent of a carbon-neutral economy by 2050. Indeed, we have set ourselves ambitious targets to support our clients in the transition and accelerate our pivotal move towards financing low-carbon energy production. By 2030, we will have completed the transitioning of our financing activities to the production of low carbon energies by more than 80% and this in less than 15 years. Our leadership remains with the #1 worldwide ranking in sustainable bonds and green bonds as well as the 2023 Euromoney Award of World's Best Bank for Sustainable Finance obtained for the third consecutive year. I'll let you peruse Slide 18, where you can review in detail on the 6 most emitting industrial sectors, the string and commitments we have set ourselves to align our portfolio to the 2050 net 0 targets on the basis of the International Energy Agency scenarios. I would now like to take you through the divisional results. Let's start the review of the group's operating division with CIB starting on Slide 21. What do we see? The second quarter is attribute of the successful strategy deployed at CIB with a strong focus on leading and reinforced platforms strategically aligned to serve corporates and institutional in all environments. And CIB saw another quarter of good results on the back of balanced and robust performances in all businesses in a more "back to normal" environment. CIB has changed scale and continues to grow. Ranking in the top 3 in EMEA with confirmed leadership positions, CIB has expanded its global market shares by 26% since 2018, with market shares expanding in Global Banking by 19% and Global Markets by 28%. Leveraging a diversified and integrated model, CIB confirms its resilient growth year after year as evidenced by the evolution of the quarterly pretax income and exchange of scale. All you have to do is to have a look at the second quarter 2020 that is more back to normal, but with continuous market share gains when compared to the second quarter 2018 or 2019. Please note, in addition that it reached a record level in the second quarter. Indeed, benefiting from its diversification, CIB's revenues decreased slightly on a like-for-like basis, minus 0.7% compared to a year ago. and this is supported by very strong growth at Global Banking, good resilience at Global Markets compared to a very high second quarter a year ago and a continued good performance by security services. If we look a bit deeper into them, Global Banking continues to gain market share as mentioned, plus 19% compared to 2018, with an acceleration in the first half '23, as illustrated on Slide 22. Hence, revenues in Global Banking were up 17.5% and growth is seen across all business lines and regions and sharp gains in Transaction Banking, up 75% in EMEA and strong growth within capital markets, particularly in the Americas and EMEA. Secondly, Global Markets continues to gain market shares worldwide. As mentioned, plus 28% compared to 2018, supporting the revenue trend you can see on Slide 23. As you have seen it, client activity as more normalized levels on the whole in the markets in the second quarter, and particularly on macro and in equities, while overall activity on credit markets went up sharply. In this environment, Global Markets showed a strong resilience compared to a high first quarter 2022, with revenues decreasing by 11% on a like-for-like basis. Facing robust credit markets, notably in EMEA and normalized client activity on rates and foreign exchange, FIC revenues were down 18% year-on-year versus a very strong second quarter, and particularly in macro a year ago. Facing lower client activity versus a high base last year. Equity and Prime Services still displays a very good relative performance with revenues decreasing by only 3%. Finally, supported by the diversification of its business model, the third part of CIB, security services, continues to benefit from a good business momentum with new mandates in private capital. With the positive impact of interest rates and increased assets due to market rebound, revenues increased by 1.6%, a solid performance. If I synthesize back to CIB overall, total costs were down 1% year-on-year with very -- this positive jaws shy of 14 points Global Banking, while cost decrease in Global Markets, again, the context of normalization of the activity. All in all, accounting for a very low level of cost of risk, CIB generated a pretax income of EUR 1.8 billion, a record, and as I mentioned earlier, up 4.7% year-on-year. In a nutshell, a very efficient CIB model embarked on a strong growth plan with strict discipline, continued market share gains and favorable positioning offsetting this quarter the impact of more normalized markets on FIC activities and another record this quarter. If you can now turn your attention to commercial, personal banking and services from Slide 25 to 32. What can you see? Well, CPBS performed well with a solid set of results and very positive jaws, thanks to the strong performance of Commercial and Personal Banking in the Eurozone and a sustained growth at Arval. In terms of activity, loans were up 3.6% across Commercial and Personal Banking in the Eurozone and specialized businesses. Deposits were almost stable in the Eurozone for Commercial and Personal Banking. If we look at Private Banking, net asset rents were strong at EUR 5.1 billion, confirming our distinctive franchises and favorable client positioning. Moreover, the division continues to focus on its commercial footprint and robust sales with notably an exclusive partnership with Orange Bank and further customer acquisition at Hello Bank!. On payments, a strategic initiative for CPBS, transaction volumes are on a clear growth at with new mandates in 2023 in the acquiring business. If we now look at the P&L, revenues clocked in at EUR 6.8 billion, up 3.3%, thanks to margins that held up well more than well. A very good performance at Arval, also combined with a good resilience at Leasing Solutions. All in all, we saw good momentum on net interest revenue, notably for Commercial and Personal Banking in the Eurozone. In France, our favorable market positioning, combined with strong franchises supported a good set of results. Net interest revenue is up 1.3% with margins that held up well on the back of our positioning and strong sales and marketing drive, but also contribution of inflation hedges, partially offset by the decreased -- increased refinancing costs. If we now go to Belgium, where it increased by 4.2%, thanks to our strong market share and in Luxembourg by 35%. At BNL also, despite a tough competition on prices, margins held up well on deposits and net interest revenue increased by 6.2%. So this is the net interest revenues. If you look at fees, we continue to get the full benefit of our leading positions on flow businesses and favorable client mix and benefit from the balance between banking fees and financial fees. If we now look at the specialized businesses. Revenues were up 5.8% year-on-year. When excluding Personal Finance, the growth is shy of 17%. Now based on a pattern you know well by combining volume growth expansion of finance fleet with higher new car prices as well as the benefit of high used car prices and new partnerships, other than Leasing Solutions saw a sharp increase in revenues of 17%. Looking at Arval, continues and will continue to deliver a very strong growth in the fleet, supporting the development of revenues, all the more than new car prices are getting higher. It is anticipating or anticipated to offset the very gradual effect for Arval of a more normalized but still at a very high level of used car market. In addition, revenue will be further supported by the development of financial margin with increased new car prices. If we turn to Personal Finance, the transformation is progressing. Furthermore, business-wise, we see an inflection point with higher volumes and higher margins versus first quarter '23 despite continued pressure. Outstanding loans were up 12.4% increasing notably in the mobility segment, supported by the new partnerships in auto loans that will also drive the structural improvement in the risk profile of PF. Lastly, new digital businesses and personal investors confirmed their role as new client acquisition engines accompanied by a strong growth in revenues, up 16%. So these were the revenues at CPBS. If you now look at the costs, they were almost stable at 0.3%, reflecting the impact of cost-saving measures as well as the ongoing rationalization of the operational setup that offset the effects of inflation. Hence, very positive jaws effect of 3 points sustained by commercial and personal banking at 3.5 points. Similarly, the specialized businesses confirm their capacity to grow at marginal cost with a significant positive jaw effect at 12 points for Arval and Leasing Solutions. Positive jaws also for the new digital businesses at 1.1 point. So if we scroll down the P&L of CPBS and we look at the pretax income, stable at EUR 2.3 billion, up 0.7%. So to sum up, a very solid quarter for CPBS with a robust business drive and the support of the ongoing adjustment in interest rate with net interest revenues holding well. Let's now move to Slide 33 to 36. So despite contrasted environment, business momentum for this third division, Investment and Protection Services was good overall, sustained by net inflows for wealth and asset management at EUR 6.8 billion during the second quarter, especially in Europe and internationally with high net worth clients. If we now look at the P&L, EPS revenues stood at EUR 1.4 billion, up 0.3% year-on-year with strong increase in insurance and wealth management. Indeed, a solid performance in insurance with revenues up 8.7%. Good business drive in France, supporting inflows, notably in unit-linked combined with a nice momentum for protection, notably in Latin America. Wealth Management also performed well, up 6.6% and boosted by the strong growth in net interest revenues with solid margins and deposit growth. An increase in revenues also for asset management on the back of net asset inflows and a market performance effect. This increase in asset management has been offset by less favorable base effect and environment for real estate and principal investments who form together 1 unit. So IPS operating expenses were up 2% year-on-year, driven by business development and targeted investments. All in all, IPS pretax income just came down by 1.5% due to a less favorable environment impacting real estate combined with the base aspect. Let me now conclude our presentation. BNP Paribas 2023 second quarter results confirm a solid intrinsic performance for the group, driven by the strength of its diversified model. Let me walk down some elements. First, distributable income on a fast track at EUR 3.3 billion with an EPS growth of 16.8%. Two, a strong trajectory confirmed for 2023, supported by a second tranche of share buyback of EUR 2.5 billion to commence in the coming days. Three, a clear and promising ambition to support a carbon-neutral economy with a clear and recognized leadership. Four, finally, attribute to BNP Paribas teams who are strongly mobilized and committed to support more than ever our client needs. So with that, we demonstrated once again that BNP Paribas is uniquely positioned to deliver strong performances serving clients and the economy in all weather. I thank you very much for your kind attention. I'm now more than pleased to take your questions.

[Operator Instructions] The first question is from Tarik El Mejjad of Bank of America.

A couple of questions from my side, please. First, I mean, Lars, it has been now 6 months since you closed the sale of BancWest. So I want to ask you to provide us a detailed breakdown of the redeployment of this excess capital coming from BancWest, but can you give us an indication where should we start to see this capital that you are putting at work feeding through the earnings and profitability and growth? And then the second question is on your return on tangible equity. So you are running now for a few quarters above your 2025 target of 12% despite your CET1 ratio being still higher than the target under Basel IV. So are you overearning somewhere? I mean you mentioned some recalled quarters for some areas like Arval and Global Banking. Or should we assume your target is conservative and the current profitability we see now is probably the run rate.

Tarik, thank you for your questions. If you look at the redeployment of Bank of the West. So basically, we have expressed in capital a gain of around EUR 11 billion from Bank of the West. EUR 4 billion of them who are using in the share buyback that is going on this year and that we will launch very shortly the second wave of. So that's the first thing. So that remains basically $7 billion. That's EUR 7 billion. We want to redeploy it organically bolting on. Again, I'm not going to repeat, but we're not going to buy a bank or whatever. So we're going to bolt on activities. And these things -- they happen. As you might have seen, we have closed Kantox, which took a bit of time to work at, the same is true. At Personal Finance, you have seen that we have an agreement with the distributor to also step up the volumes. So these are things that happen. And so you cannot imagine that with a magical want, we do everything at once. It basically takes time, and it happens. And you see that we are on track, as I gave it, what we see in Personal Finance, what we see with Kantox, and the likes. And so this is what we're doing. And so what are we going to do? Well, as I mentioned, we're not going to do a bank. We're going to do things that is basically that strengthens activities that we have. So we're not going to go into regions where we are not present. We're going to strengthen. We're also going to redeploy it in activities which are very efficient when it comes to capital consumption. So what can that be? That can be insurance activities, that can be market activities, that can be asset management activities. These are the kind of things that we look for. And again, don't expect that this EUR 7 billion will be redeployed in one go. We really said it's going to be, even if I say EUR 6 billion organic, EUR 1 billion in acquisitions, that's going to take time. So it's going to be say, EUR 2 billion every year from now to 25 million. And again, if you look at Kantox we closed and the Personal Finance one, we feel we are doing that. And so the share buyback is really on track to make that happen. So that's basically where we stand. And so back to your question of the things we put in motion. So yes, we have guided that we have an objective for EPS, an objective for earnings, you'll see that we are delivering well on them. And moreover, we basically confirmed. So we confirm the 2013, we confirmed 2025. So all of this, we are well on track, very well on track to basically deliver on those and we confirm that. So Tarik, that would be my 2 answers to your questions. I don't know if that answers them. Tarik, maybe before you just launched the question. I understood, but I missed it. You also had a question on the ROTE. So on the ROTE...

So I thought you avoided it but...

No, no, no. Tarik, actually it's -- and it's not only to you, I say it all, if I don't answer, don't hesitate to repeat. It just that I missed it. No, on the ROTE, what is clear the message is -- our objective is to really step it up. And the idea is that over the plan, there is this kind of 12% ROTE that we want to go for. Now the only thing is, and you see it going up. If you look at chart that we have. If you look after the 6 months, you clearly see it going up. There is just 1 little thing, I have to say. If you look at the ROTE after 6 months, as the calculation of the ROTE is regulated, in the sense that it takes the formal 6 months and extend it to the next 6 months. So it is always typically the 6 first months are a little bit flattered because in the second half of the year, there is August, there is December, which are typically a bit calmer months. So typically, the ROTE as it's calculated as it is -- as we are obliged to calculate it, is a little bit flatter. So the 13.6% is a little bit flatter. But if you see the trend, it clearly confirms our objective of more than 12%, Tarik. Operator, would there be another question?

The next question is from Matthew Clark of Mediobanca.

So 3 questions, I'm afraid. First one is a board numbers question on Asset Management and Real Estate division. The allocated equity went up by about EUR 0.5 billion last quarter, but the risk-weighted assets didn't go up. I'm just wondering what was behind that, whether there's some deduction or something that's driving that increased segmental equity allocation? Second question is on the Personal Finance division volumes. It looks like -- well, the slides say that there was 8.4% growth on a constant scope and FX versus the first quarter. But I think that doesn't adjust for the Stellantis deal and somewhere I read that there was EUR 8 billion of volume that came in from that. So I just wanted to understand what was the organic growth trend in the personal finance volumes quarter-on-quarter? And any commentary you have there about whether there's been an inflection yet. And then a final question also on Personal Finance. You gave some targets at the start of the year of EUR 7 billion for Stellantis and EUR 3 billion for Jaguar Land Rover volumes by 2025. So of that EUR 10 billion, how much has already been delivered in the first half?

Matthew, on your first question with respect to capital allocation, there is nothing in particular. This is a bit modeling that we do, that we evolve. But basically, I'll ask the teams if there is something else that you would have spotted, but normally, there is nothing of relevance there, but we'll come back. So when you look at the personal finance volumes. So indeed, as you know, what is happening is we are transforming personal finance. So the activities that we have. So if I go back, Personal Finance, in the past, we were able to grow maybe 1 product in a country and that was fine. So what we now basically see is that when you have 1 product not really at the core of what we do, we aim to have several kind of products. So the entities and the locations where we typically operate as such, we are basically stepping out. So that's why we're stepping out of Latin America. That's why we're stepping out of Eastern and Central Europe. And so we refocused the activities basically on the Eurozone. Because in the Eurozone, we can really focus on the kind of collateralized activities. And so the collateralized activities are, in particular, the mobility and the home improvement ones. And if you look at -- so if you look at Personal Finance, on one hand, you have the impact of those volumes that we are reducing because we are selling those activities or we are ramping them down, and then you have the addition. So when it comes to -- when you look at the volumes at which they operate, the best proxy, actually, in the comparison of the second quarter 2023 is not the comparison a year ago because since that year ago, you had a pressure on the margins. The better comparison is the first quarter of this year because intrinsically, the businesses -- the trends that you saw are rather the same as what you see and so you will have a pickup, which will be crystallizing. And so if you compare it to a year ago, well, it takes 4 quarters before you see this. So your best proxy for, let's say, the volumes and what you see in the first quarter. And then Stellantis is indeed the one that we -- what you have added. And so listen, let's be fair, when we gave guidance on what we anticipated for it to be, the EUR 10 billion is basically what we have because if you look at the deal that you talked about with Stellantis; Stellantis it's a deal where these activities gravitate. In the past, they were structured around brands. Today, they are structured around countries. And so there is a restructuring happening of the countries and the brands in which we are. So for the moment, there is a total add-on of 8, but that will go down by EUR 1 billion as there is activities that we will transfer back. And so this is how you have to see it versus the EUR 10 billion that we anticipate. So Matthew, that would be my questions. Did I miss one? No. Those would be my answers, Matthew.

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

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

And on Jaguar, that will come in over time as you like new business.

Yes, exactly.

The next question is from Flora Bocahut of Jefferies.

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

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

Just to follow up, please, on the payout. The question is not around the level, not the 60%. It's on the mix, like why stick to just 10% out of the 60% via buyback and not more via buyback?

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

The next question is from Giulia Miotto of Morgan Stanley.

Two questions for me, please. So the first one on the Basel 4 finalization in the U.S., do you foresee any impact on BNP business in the U.S. or on the competitive landscape within CIB? And then the second question, again on the CIB, but this time more on the outlook for revenues and pipeline. So we are coming off strong years '22 and before. Revenues were slightly down. Is this a more normalized level? Or what do you see going forward?

Yes. Thank you, Giulia. If you look at -- if you look at Basel 4 in the U.S., there, the first thing I have to say, I don't know what and where it will come. I've been hearing now for years that next month, it will come. So we will see. Now the thing is, intrinsically, the main concern I have is that saying I would not want the implementation of Basel lead to a competitive disadvantage between the U.S. and Europe. And so we have been -- we had a very strong advocacy versus Europe that whatever Europe would decide and particularly on everything related to market risks that it would have to be aligned on the decision that the U.S. is taking. And that clearly, Europe took it on board. So from that point of view, we understand that Europe will align whatever it would decide around FRTB with what the U.S. is doing. So that is, from that point of view, to listen, I don't know if and when something will come out. I have kind of the sentiment that there will be a level playing field between the 2 sides of the Atlantic. And that is basically what counts for us. So then when you look on the outlook of CIB, listen, as you have seen, if you take CIB, you take Global Banking, you have seen that there is a very solid result. So you can imagine that this stems from a pipeline, which is solid. And again, with whatever you read and you see, you can imagine that, that is the case. And when you look at global markets, it's a bit the same thing, right? Global markets whatever -- I don't know what the ECB has announced today, look at that 25 bps. And so given that uncertainty in the macro environment, there will probably be a sustained demand in macro. There will probably be a pickup when it comes to equities. So from that point of view, we remain comfortable on the outlook of CIB for the rest of the year, Giulia. So those would be my answers.

Next question is from Jacques-Henri Gaulard of Kepler Cheuvreux.

[Technical Difficulty].

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

Okay. Lars, can you hear me? .

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

I thought you had censored me for a minute, 3 questions. The first 1 on your S1 and S2 provisions, I checked the registration document of year-end '22 and the document you published this morning, it seems that the stock went from 5.6% to 5.2%, which implies a consumption of EUR 400 million in H1. So you mentioned EUR 150 million in Q2 that will imply obviously whatever EUR 270 million, EUR 280 million in Q1. I'm surprised to see you use these numbers, which are not even very high as a percentage of your stock, considering that, as you said, the asset quality picture remains very good. You're still below your 40 basis point target. And actually, intuitively, I would have thought you keep these type of releases for the time when the economy is not going well. So just wanted to know what was going through your mind when you release this provision. That's the first question. The second question, the corporate center restatement is just a little bit weird because when you look at the restatement relative to insurance, you end up with minus EUR 20 million, minus EUR 30 million on a quarterly basis. Was it worth going through all this just for that small amount. And the last question. I remember the legendary Slide 5 or Q4 2022, you had given the EUR 7.6 billion redeployment of capital, but there was one thing, which is missing today, which was the EUR 2 billion extra net interest income by 2025. Do you still confirm that because I can't see it? And do we still have the bulk of this to go in the remaining time until the end of the plan.

Jacques-Henri, I would never have silence your questions. So if I take them one by one. First of all, on the S1 and S2, these are kind of regulated. I mean, in my younger days, if you had a provisioning called generic and things like that, you could guide in that. Today, in the S1 and S2, it is much more mechanical and so you need scenarios that lead to that. And so you can imagine, as you know me, I am a conservative CFO and so we look at these things to provision. And at some point in time, somebody comes along, looks at the scenarios and looks how it's materializing and say, "hey, maybe it has been a bit too conservative in your view, and so you have to write back some elements." So that is basically what we do. At the same time, you might remember that I still aim to have some generic provisions, like, for example, when people were afraid about commercial real estate we added some generic provisions that basically we don't need. So that's a bit on this, yes. So we remain very conservative. Don't get me wrong. It is just that S1 and S2. Basically, they live according to scenarios and that's what it is. On insurance, man, what can I say. On insurance, IFRS 17, I didn't ask for that. Basically, that is what happens. If you see the amount of work that has to be done and the kind of things that it leads to, what else can I say? That is what it is and that is why, as I mentioned, we have some of that volatility we moved it into our general account in order to have at least the read on insurance as coherent as possible. And then on your EUR 2 billion, what else can I say? I can answer easily. Yes, it is confirmed. I remind you there is a difference. I mean, for those listening to the call, there is a difference on the impact of interest rates going up, depending if you are basically in an environment with loans that are priced on a variable base or on a fixed base. So if you are in an environment of variable, you have an impact going up and then it's basically done. Whereas as we are in an environment where the rates are fixed, the renewal and so the increase is coming from the renewal of the loans. And so that's why we said, as these are loans like on average more than 5 years, so the impact will be roughly like EUR 700 million a year. And so by the planned horizon '25, we said there will be EUR 2 billion, but that's not the end of it. That will continue thereafter. So there is another EUR 2 billion for the plant thereafter, if I can say. And so if you look at it, you can see the details on Page 48 in the book, where we basically mentioned that the net interest revenues in CPBS are up already 7%. And you clearly see how that will be ramping up. So yes, we confirm the EUR 2 billion. And yes, you see that in the curve that all that is crystallizing. So Jacques-Henri, thank you for your question.

The next question is from Jon Peace of Credit Suisse.

[Technical Difficulty] risk going into the second half of the year? Do you think it stays ...

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

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

Thank you, Jon, for your questions. If you look at the cost of risk, so we clearly said less than 40 basis points. Listen, I don't have a crystal ball if I can say so. So I don't know. The only thing why do we feel comfortable that it will be below 40 basis points for several kind of reasons. So if you look at the segments in which we are, so which are basically the corporate. If you see that the corporates have been whatever you think is ahead of us, is it a stagnation, what have you not. But those corporates have been anticipating this for a long time and they've been able to adapt themselves. They've been able to adapt themselves on their cost base, on the focus on products and the likes, but that's our clients, yes. So in our clients, we basically don't see that. Moreover, so we have all of those triggers that we see. We don't see any one of those. And on top of that, we do have the collateral. And on top of that, we have anticipated provisioning. So that is why, in total, we feel comfortable. What will it be? Jon, I don't know. But it would trend to be below 40 basis points. Can it be just like all that we would have one day, one file that will make it pick up towards 40 basis points. Will it remain like this below 40 basis points. So we feel quite comfortable that it will be below 40 basis points. Will it be 30 basis points? Listen, I don't know, but with whatever we see and in the client base that we have, we are quite comfortable. Now on the share buyback. On the share buyback, the thing is, listen, Initially, we were planning -- or we assumed to get the approval by the ECB by end of August. Technically, the ECB has 3 months. And today, with the new regulation, they have 4 months, yes. So we are pleased that apparently, our file is easy to read and that we got it earlier. So we will be able to launch it earlier, so basically next week. And so of course, we launch it as fast as we can. But at the same time, we don't want to perturb the market. So the volumes that we do on a given day, we don't want it to perturb the share price. So it will be, I don't know, what, 20% of the daily volumes. But as we will start earlier, I guess, well, whatever you know I'm a conservative CFO, It should be done by December. That's a bit what we see.

Next question is from Amit Goel of Barclays.

I've got 3 questions. The first one, just on distributable income. So it looks like a strong performance so far for 2023, you should be able to achieve and maybe beat the amount that you've stated. Just curious then into 2024, does that give you kind of some leeway versus the kind of 9% net income kind of CAGR? Or do you see that kind of as a minimum per year in terms of growth. The second, in terms of the businesses, I guess, IPS is one, which seems to had a slightly slower start versus the kind of targets for growth. Just curious what your confidence is in the ability for those businesses to achieve the targets? And what gives you confidence. And then thirdly, just coming back to the redeployment of proceeds. I obviously -- I heard you on the first question in terms of the areas that you're looking to reinvest into. I'm just kind of curious, as you see the marketplace developing, whether you're seeing more or less opportunities in terms of the timing of that redeployment and whether you think it's potentially going to be a bit more near-dated or a bit further out? Or essentially, it's a bit too difficult to say at this stage.

Thank you. Listen, if we look at the distributable concept, this is something we will only use basically this year. And why? It's because it's a pivotal year. It's a year, it's pivotal for kind of reasons there are these IFRS rules that changed and then on top of that, it's the last year of the contribution to the single resolution fund. And so that's why we basically said, listen, all those elements that are not really as a base going forward. So it's basically the breaking of the TLTRO, there is the single resolution fund. And so we basically say we take that out. And so if you take that out, what remains is basically a good basis. It's more than a good basis. As I said, it's already more than compensated for Bank of the West. And so that is the base going forward and on which we say our bottom line will grow 9% a year and the earnings per share related to that will grow 12%. So that's basically what you see and it should be a readable base comparing both to 2022 and being the base for '24 and beyond. So that's why we do it, but we will only do it once. After that, we fall back in the normal growth. Then when you look at IPS, yes, IPS, there are several things. First of all, in particular, if you look at our IPS in, for example, real estate on top of that, it's a bit skewed rolling from '22 and '23 because '22 had a high base in volumes and with what is happening now, it sees a lower base. So that's a bit the tilting that you see in 1 year that has basically 2 effects. Now moreover, you should not forget that IPS is that engine that basically has the technical skills in product and distribute them not only through BNP Paribas kind of distribution channels, but also through other channels. So it's one that really has a lever for growth that is over and beyond what we have within the bank. And what you have seen is that the agreements that we keep on signing with partnerships like what we have renewed, for example, with Luiza in Brazil and in the likes. So it is basically something that really is really a lever for growth consuming little capital. And so that is why we are very confident that it is a core growth engine going forward. And then there is this point '22 and '23 on real estate that I mentioned. And then on the redeployment, listen, we feel comfortable. In the kind of thing, again, I don't know what you have in an outlook on your economy, but these things in particularly the 20 basis points of redeployment on bolt-on our own technology, listen, intrinsically, this could go fast if there is some kind of an uncertainty in the equity markets where that is something that could lead us to come to a swift agreement going forward. Those will be my answers.