Société Générale Société anonyme (GLE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer; and William Kadouch-Chassaing, Deputy, General Manager, Head of Finance, represent the group third quarter 2020 results. Gentlemen, go ahead.

Okay. Good morning to all of you. Thanks for attending this call. And first of all, let me say that I hope you're all well in a still uncertain environment from a health perspective. As usual, I will go through the results with William and then our global -- our whole management team will answer your questions, and we'll try to be as short as possible. Let me first turn to the Slide #4, where you see the major elements of this first quarter results, leading to a net profit, as you know, of EUR 862 million, which is up significantly compared with last year, close to 10% on a like-for-like basis and at constant exchange rates. We've seen a clear rebound of revenues across all our activities versus the second quarter. But also when you compare with last year, even versus last year, there's a slight increase by 0.5% on the like-for-like basis and at constant exchange rates. It's particularly true, of course, on the capital market after the first half and the impact of the dislocation we saw on the market. In terms of costs, we pursue with the same discipline, minus 5.6% versus last year. A strong increase of gross operating income as a result, plus 14.6%, and we confirm our guidance for this year, underlying operating expenses at EUR 16.5 billion. On the cost of credit, and I'm sure that we'll have different questions on this. But you will remember that we had initially guided for a guidance of 70 to 100 basis points. Then transformed the capacity to convert towards the low range and this guidance is more than confirmed. We have finished the first quarter at 40 basis points, of course, up compared with last year, which was extremely low. It was the low point with some write-backs from insurance in Romania, in particular. But of course, we have a strong decrease compared with the second quarter, and we confirm our guidance around 70 basis points, including factoring, of course, this additional uncertainty with this second wave of contagion. And regarding the capital, we stand at 13.1%. If I add the 10 basis points, which comes from the sale of our Scandi financial leasing business, which has closed on the first of October of this year, we are actually at 13.2%. That gives us a very strong buffer of our regulatory requirements and 420 basis points. Clearly, giving us flexibility for distribution to our shareholders beyond the provision, which is already included in this core Tier 1 ratio, which is 50 -- correspond percent to 50% of our underlying net profit, which is EUR 0.21 per share. Let me turn to 2 pages, then I will be brief. But can I say that beyond looking at the very short term, the impact of these prices, as we prepare our next 5-year trajectory, we have to think about the structural trend that this crisis is actually accelerating. And the first regard the energy transition, you know of that. Usually, it's, of course, a long-term process. People talk about 2050. What I can say in the short term, first, we confirm our status of the worldwide leader in renewable energy financing. And actually, according to IJGlobal, this agency puts us #1 in the world at the end of September. So we have definitely an extraordinary expertise in that field. And second, in terms of realignment of our credit portfolio, we have said we would, in the coming months, align our credit portfolio with the methodology that we have designed with 4 other banks: European banks, BNPP, Standard Chartered, BBVA and ING. We have now this methodology which is actually available for all the banks. And we will align all our portfolios alongside the scenario of the International Energy Agency. And what we are doing, very concretely taking, of course, a portfolio which is probably at the call the one which is the most questionable, is to commit to cut by 10% in the short-term 2025. So the horizon that we have in mind for our strategic road map. Our footprint in terms of the extraction of oil and gas, we will do that by also accompanying our clients in their own transition. There are some major companies which are doing the job. I have in mind the TAM, for example. And we will accompany them, including in the financing of gas that we see as a useful energy for the transition phase. But of course, giving a priority also to the financing of renewable energy. And as part of that plan, one of the significant components is that we are going to stop any new financing on onshore gas and oil extraction activities in the U.S. Let me come to the next slide. It's around, of course, also the client centricity in that period of time. Let me just say, we have tried to illustrate different things. First, that we have been able to maintain or even expand on significant market share in our core markets. I have in mind in wholesale in Europe in particular. We are, of course, mobilized to help the economies to share these crises. In France, it's now EUR 20 billion of guaranteed loans that we have validated for our clients. And of course, digital transformation is at the heart of what we think going forward. And I have to mention the extraordinary success of Boursorama, which has validated its business model in this crisis and which has now 2.5 million clients and which will reach, as you know, 3 million next year with a very high level of satisfaction and which is definitely the #1 online bank in France. Can I also mentioned beyond the fact that we will be the first half retail French bank offering an open architecture in terms of asset management products from the first quarter 2021. I will turn now the floor to William, who will enter into more detail to our third quarter results.

Thank you very much, Frédéric. Good morning to all. Thanks for the attention you paid to our company, and I do hope that you are safe and healthy. Starting with Page 8. As Frédéric said, the main takeaway of this quarter is clearly the strong increase in the group's gross operating income, both on a quarter-to-quarter basis as well as on a year-on-year basis. As you can see, gross operating income is up 15% -- close to 15% year-on-year adjusted for perimeter and foreign exchange impacts. It's up 42%, adjusted for the same factors, Q-on-Q. That is based on a satisfactory performance or improving performance on revenues, very strong Q-on-Q, but also adjusted for permit and foreign exchange. You can see a growth in revenues by 0.5% in the third quarter. That, combined with a strong decreased cost, 5.6%, like-for-like. As you can see, the performance is across the board. You can see the strong increase in gross operating income across businesses -- in all businesses, I should say, with a very normalized corporate center performance. As a result, net income stands at EUR 862 million on published terms, which is close to 10% increase relative to the same period of last year. A key element, of course, of that performance is the achievement on the cost target. Let me remind you that this would be the second year in a row that we are decreasing our cost base in absolute term. The cost base was EUR 17.6 billion, underlying in 2018, EUR 17.4 billion in 2019, and we're heading towards our commitment, which we reiterate today, of EUR 16.5 billion by the end of the year 2020, which is about a 5% decrease. As you can see, for the first 9 months, we are at minus 5% and we accelerate that path in Q3 with an 7.3% decrease. You also know that we are committing to decrease further the cost base through various efficiency initiatives, some of which we have already announced. You know the EUR 450 million commitment in global markets by 2022 and '23. We will be back to you with regards to the French retail banking study we are undergoing now. And that will encompass, obviously, both commercial ambition and efficiencies. And as we already discussed with many of you, we are on a constant improvement mode as far as transversal functions, processes are concerned, which should also benefit from the closure of some of the key remediations beyond 2022. Cost of risk is down, and that's obviously a major element also of this quarter, as Frédéric said. It is down relative to Q2 to EUR 518 million, a 40 basis point annualized cost of risk to be compared with 97 in Q2. I would like, however, to point out that we keep a cautious stance as regards cost of risk. First of all, it's up year-on-year, up 57%. And second of all, we have added again some Stage 1 and Stage 2 provisioning, forward-looking provisioning in this quarter, particularly pertaining to international retail, a bit in French retail. We are in a capacity to confirm on that basis that our cost of risk should be at around 70 basis points for the whole year, as Frédéric stated. One comment to finish on that, on NPL. Our NPL ratio compared very well relative to peers in Europe. As you know, including the gross coverage rate, we have been able to sell some exposure in the third quarter, and I can confirm that when we sell exposures, we are able to complete that at a profit. The next page give you more detail on the cost -- on the asset quality. I will not go into the details. We also have some additional information in the group's supplement. We are at your disposal with Diony to answer any of these questions. But in a nutshell, we consider that we have a very solid portfolio, both on the corporate and retail side. Very diversified. Actually, the EPA stated that we -- our exposure to the COVID, the most affected sectors is lower than the average of European banks, as we already said. And as you can see on the right-hand side, we have the inventory of provisions of EUR 2.6 billion for the first 9 months. One comment specifically on moratoria because we know this is an area of questioning on your side. So just to remember you, we had an inventory of EUR 35 billion outstanding as far as moratoria are concerned. Those are down by about EUR 9 billion in September. We expect that 70% of moratoria will have expired by the end of October in France, 63% for the rest of the group, and we should be done with the bulk of the moratoria at the end of the year. Very important to note that we haven't seen particularly specific abnormal casualties as far as these moratoria are concerned. Core Tier 1 is obviously a very important element in the way we look at our company. We continue to increase the strength of the balance sheet. Core Tier 1 is up 60 basis points in the third quarter to 13.2% pro forma for the sale of SG Finans. As Frédéric said, this is a good 420 basis points above NDA. You know that what we consider is the right level in terms of management pursuits, around 200 basis points. We are very well above that number. What makes it increase is a number of factors, some of which -- or I should say, most of which we have already announced. We have organic capital generation, 15 basis points, through net income, net of hybrid coupons and dividend provisions of 50% of the underlying results, as you know. We have, secondly, a decrease in organic RWAs for about 35 basis points, most of which we have already announced because we have the reversal of state-guaranteed loans temporary effects. We also have a normalization of market risk out of the pandemic coming a bit faster than earlier expected. And we benefit this quarter from the removal of the capital deduction on IPC, that's on France elements. Important to note that we have the regulatory headwinds that we have talked about pertaining to regulatory operational risk for 15 basis points this quarter. I will not comment the other ratios, they are all up and strong. Again, very well improved the mandatory threshold. Just to mention that on liquidity side, this is not on the page. We end up the quarter with a LCR at 279%, and NSFR remains above 100%. The liquidity buffer is up again and stands at EUR 233 million billionths quarter. Next page, I usually don't comment, we leave it for questions. A few comments on the businesses now. Page 14, you have some key elements pertaining to French retail. Boursorama, I wouldn't say they are on the rebound. They continue on a very strong path, both in terms of client acquisitions. So you can see plus 22% year-on-year for the first 9 months and the third quarter, combined with a record level of brokerage orders, and that obviously translates into an improved profitability, which Boursorama is securing its position as the clear #1 in online banking in France. In the rest of French retail, you see a marked improvement in production across the board relative to Q2. And you can see that relative to the same part of last year, we have -- we benefit from improvement in core client basis. The net inflows in private banking, increase of the unit-linked share in our spending in life insurance and P&C has a good quarter as far as bank insurance is concerned. You see the outstanding are up. Clearly, the key element of the third quarter is that production has normalized as far as individual clients are concerned, it's not necessarily back to 2019 level. However, as far as corporate is concerned, our concern is still a strong boost in the context with a key element pertaining to PGE. And deposits are up, strongly up actually. Side deposits are up 20%, which translates into, obviously, some pressure on the NIM, which I will now comment. You see the overall results of French retail. First key point, the return remains resilient. We keep saying that quarter after quarter but that's a very key element. And when you compare it to others, this is a strong performance, I would say, overall in the context. 9.2% return for French retail in the context. That is made of a combination of improved revenues, certainly quarter-on-quarter, both from the NIM side and the commission side, although we continue to see a strong pressure from negative rates, combined with a marked increase in site deposits leading to the NIM being in negative territory still. In that context of improved revenue performance, although strong pressure on the NIM side, we see ourselves improving the gross operating income, thanks to a very strong cost discipline. Costs are down 6% year-on-year, translating into positive jaws effects. International retail banking. Again, same pattern. You have a very strong improvement relative to Q2 across the board across all geographies. And of course, including consumer lending, where you know we have very strong positions, particularly in car finance. I'd say, however, that on a year-on-year basis, situation is contrasted between geographies, with Eastern Europe continues to suffer from a decrease in the interest rate environment. You see Russia up 3%. And you could see that in the top of the page that Sub-Saharan Africa continues to be up, revenues continues to be up year-on-year, particularly Western Africa. In financial services and insurance, very, very resilient business through the crisis, both the 3 of them. But we see yet again a marked improvement relative to Q2. And overall, we are in positive territories in some businesses relative to the same period of last year. So in France, I don't repeat what I've just said on the life insurance. But let me focus on P&C premier. We have the protection premier as a whole on the page. But the P&C premier for the first 9 months are up 13%, 1-3, which obviously reflects our strong efforts to increase our -- the penetration of our client base there and is a dedication to the growth profile of this business. ALD has revenue up 3% in the quarter. Leasing resist well with slower production compensated by higher margin. And as a result, the IBFS pillar, which is the next page, proves again fairly resilient at 12.3%. That's obviously below the historical 17%, 18% return for that business. But in the context, this is satisfactory, we think, given the fact that particularly in IBFS, we did increase the provisioning pertaining to Stage 1 and Stage 2 cost of risk, as I said before. As you can see, cost discipline remains strong in the context where you have naturally more inflation than other geographies or areas in the business. Global Markets & Investor Services. And generally speaking, GBIS is obviously the very bright spot of this quarter. You see when one focused on market, revenues up across the board. Revenues are up from market operations, 7%; equities, plus 5%; FIC plus 9%. In the context, and we will come back to this with the team, in the context where we are in the process of derisking a portion of the business, as we had said in Q2, particularly on structured products in the context where we continue to integrate the EMC acquisition, which has proven successful, and in the context where we managed to decrease cost, I would say this is a strong performance overall this quarter. When turning to Financing & Advisory, resilient overall with contracted performance. Of course, as you would expect, asset finance does -- is a bit under pressure on the volume -- in volume terms, also margins are holding well. There is less to do in aircraft and real estate finance. On the other hand, infrastructure finance is very strong. Frédéric alluded to renewable energy financing, where we are #1. And I think CIB, in general, we benefited from strong volumes in corporate bonds. ECM and advisory are strong, particularly in France this quarter. Let me point to, in Asset and Wealth Management, to Lyxor, which had a very strong quarter, particularly in EPS, you see the Lyxor revenues are up 10%. And as a total, as you can see, revenues being on the increase for GBIS, both Q-on-Q and year-on-year, with cost decrease very materially as a result of the execution of our clients. You can see 10% for the first 9 months of the year, adjusted for foreign exchange and perimeter, 8% for the quarter. We have a very strong positive jaw effects. Reported net income in that division is up 50%. Return on a reported basis is 10%, underlying 8%. Corporate Centre, not much to mention, except that as we have said, it is normalizing after some volatile components that we have seen in first half. So it's coming back to a very normal pattern and actually absorbing some of the volatility that we had in H1. As you see, the gross operating income does converge to a more normal level for the first 9 months. So nothing to mention particularly there. I'll leave it for questions. With that, I hand to Frédéric for the conclusion.

Well, thank you very much, William. Just a few words of conclusion, Slide 24. We are, as you see, working on optimizing the competitiveness of our franchises. Let me first start with GBIS. Obviously, the business in which they had -- you had most of the questions. And I think we are showing that, yes, we have definitely certain specific franchises where we work on the -- this derisking, but it's a business which is able to compete with a very strong expertise well suited for the transformation of the world in which we operate and where we work for further cost efficiency. So more work going forward, but I think we are confident there. Second, the French retail, obviously, the study and the combination of the 2 networks is a very important milestone for us. But I would like to highlight, again, the strength of Boursorama, and I think we'll be able to offer a very strong overall franchise in our domestic markets. And regarding International Retail and Financial Services, we have completed the refocusing. And I think beyond the current situation, we consider it's a growth dealer with good opportunities going forward. Next slide, Page 25, in terms of capital and dividend policy. We are not changing our dividend policy, the present payout ratio on the underlying group net income, and we have provision for that for this year. But as you can see, the high level of capital we have gives us flexibility in terms of shareholder return in particular. Let me just tell you, Slide 26, that we are -- we'd like to have a series of presentations with you. KB is presenting today also its road map for the next year. ALD will present next week its projections. And again, it's -- you will see we are really busy in the capacity of this business to develop with all this mobility sector, which is changing so much. We would like to have on the 7th of December a presentation on the outcome of our study regarding the French retail. And at the same time, we will present the road map for Boursorama. And then beyond the fourth quarter results in 2021, we would like to have the new management team for GBIS presenting probably in the first quarter, the perspective for our business and what we want to achieve. So I think that in the coming weeks and in the coming months, you will have further clarity beyond what we are presenting in the third quarter results. So now let's turn to your questions. Please let me remind you the nice discipline, which is to have 2 questions per people. So that all of you can have its question -- the question they want to ask. Let's start now, let's kick off with the Q&A session.

[Operator Instructions] We have one first question from Mr. Stefan Michael Stalmann, Autonomous Research.

Yes. I have 2, please. The first one on GBIS. You very helpfully provide a geographic breakdown of your GBIS revenue every quarter. And it looks like you had a fantastic quarter in the Americas, about EUR 550 million revenue where you typically are closer to EUR 350 million up to EUR 400 million in recent quarters. Could you maybe add a bit of color on what went right in the Americas this quarter? And the second question relates to what you say on Slide 6 about the open saving architecture in French retail banking. Could you add a bit more color of what you expect to see and what this could mean for your distribution agreement with Amundi? And I was also curious whether this idea of open market architecture also captures your unit-linked products and the funds that would underlie your unit-linked policies, please.

Yes. Yes, Stefan. I will leave the floor to Severin on your first question, and then Sébastien Proto is in charge of the French retail. Severin?

Yes. Thank you, Stefan, for your question. As you know, our exposure in the U.S. is mainly driven by 2 businesses, Global Market and Finance and Advisory. And it's fair to say that globally speaking of global market performance in this quarter in the U.S. has been significantly good, specifically both in fixed income and in equity. In equity, all the flow activity has been good and even the investment solution also made strong results. And the good news is that, globally speaking, our peak activity as we show is growing by 9%. But it has been driven mainly by the U.S. [indiscernible]. Finally, on the global finance, we are more or less in the same than the usual, if I may say so. So real product performance, I must say, is coming from global market activity in the U.S.

Thank you. Sébastien?

Yes, Stefan. So as you mentioned, our objective is to provide to our clients an open architecture in terms of savings in January 2021. So as of today, we have been negotiating with Amundi our agreement, which was supposed to expire at the end of November 2020. So the negotiation is over now. And we will welcome other asset managers before year-end in order to be able to provide the best offer for clients starting 2021. It will be something very important for our clients and a key differentiating factor on the French market because we would be the only bank able to provide an open architecture on the French market. You mentioned unit-linked products. This is clearly part of our strategy. And one of our key focus with a lot of success this quarter because, as you can see in the slide, we had in Q3 a strong increase in terms of unit-linked products. So clearly, the objective is the following: being able to offer the best products for our clients based on asset managers, which will be Amundi, plus other names which will be disclosed before year-end.

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

Yes, so 2 questions. The first is probably on the cost side. And I realize that your priority now is probably to reduce the volatility on the P&L. So for the 2 measures you've announced, the EUR 450 million plus potentially on the French retail, can you believe that there will be a decrease in absolute terms of your cost base? That would be the first question. And the second question is on the energy transition. Thanks, Frédéric, for being one of the very few CEOs to actually talk about it, more than in passing for 30 seconds. You're #1 in renewable financing, but you're going to hear some horror story, in particular on wind mill finance. And I was wondering if you could maybe give a bit of color on the asset quality currently on your renewable financing portfolio and how it looks like on a maybe 3- to 5-year view? And the PACTE initiative in terms of climate, when do you think you guys will be able collectively to present something to the market?

Jacques, on your first question, I will let William answer. I think Severin can answer more specifically on your question on the quality of the portfolio. Really, I think we've made -- I just would like to say on the renewable, we've made, firstly, very strong progress in the methodology. With this PACTE methodology, the Katowice Group, we have been working 18 months and that's the idea to now implement the methodology to reach the alignment. We might -- we have in mind to present something [indiscernible] what happened. Also, we are not able to do that. Maybe next year, we'll do something specific to explain further because I think it's important that the market gets more understanding of what it means, and it's something which is relatively complex, and I think we're spending some time on this. And I really believe it's going to be, in the long run, something very important. So we might organize an event on this topic. But certainly, as you can see, we are moving ahead significantly. And that's the message with this very short term, very concrete objective that we have taken. So first back on the cost, William.

Jacques-Henri. Yes, we confirm what we have been saying for some time now, that the idea is to continue decreasing the cost base in absolute term in the midterm. Second, particularly about CIB, which I alluded to, we have said and we have done it so far, we have said that we would decrease the cost base by a good EUR 500 million between 2019 -- '18 and 2020, actually we'll probably do more as you can hit from where we are now. And allow me for not being more specific on French retail, we will come back to you with potential numbers in a few weeks' time. Let me finish by saying that the effort we're doing on cost is across the board. It has encompassed some of the businesses you just mentioned. It does obviously comprise all what we do on processes, functions, IT operations. And it's also a big endeavor in the areas where we continue to invest or where we face some inflationary pressure, for example, in certain jurisdiction, you have to increase salaries. You can see that across the board. Case in point, look at Russia in Q3. Despite the inflation, the CPI number, Russia has been able to decrease cost by 11% in Q3 year-on-year.

Thank you. Severin, on our exposure on the renewable finance.

I'm not sure to have completely understood the question. If you speak about the specific credit concern regarding the windmill exposure we have, I am not specifically on that for the time being. So we don't see any specific risk issue for the time being in this quarter.

The next question is from Madame Flora Bocahut from Jefferies.

Yes. I have 2 questions on cost, please. The first question is regarding the cost cutting that you have announced in the GBIS division. So you target there to cut costs by EUR 450 million by '22, '23. Could we already expect some progress on the cost base as early as '21? Or should we expect that the bulk of the cost savings will be back-end loaded toward '22 and then '23? And the second question is regarding a potential restructuring charge. I would say especially in GBIS, maybe also for French retail, given the ongoing study you have in the networks there. If you could just give us any information on the potential magnitude or timing of a restructuring charge, that would be helpful.

Yes, Flora. Severin on your first question and William on your second.

Yes. After the big effort and the big impact we had this year to the last year plan you saw this quarter specifically, we are not to expect a significant decrease next year. And to be clear, it would be more in 2022 and more to '23 for the full impact.

William?

Flora, thanks for your question. Yes, it is to be expected that there will be a restructuring charge. More generally speaking, cost to achieve in order to decrease the cost base, businesses or functions or processes. There are some related to the IT investments. And then sometimes the case maybe some severance. So just to be very clear what it entails as far as shareholders are concerned. First, remember that we pay a dividend based on underlying. Underlying will be retreated from this cost. Second, this is not, once and for all, provisions that we may see. It will be sequenced over a certain period of time, depending upon the project and how they mature and how they develop. And third, more specifically for 2020, we may see some very manageable number, probably pertaining to what we have now announced in some areas, but not necessarily a very big number.

Next question is from Madame Giulia Miotto from Morgan Stanley.

A couple of questions from me as well. So on French retail, revenues are actually holding up pretty well. And I was wondering what's the impact from TLTRO that is booked in there. And what is the outlook for the top line in French retail, in your view? So that will be my first question. And then a quick follow-up on the restructuring cost point. So the total cost guidance for 2020 is a 16.5% underlying. But did you clarify what restructuring charge you expect actually in 2020?

Giulia, I will leave the floor to Sébastien on your first question on French retail. Again, on the second one, William said there might be some elements of CTA in 2020, but relatively moderate and it's not included in the underlying, what we call, the underlying costs as well as in underlying net profit, which is used to calculate the dividend. So it's a one-off that we consider not part of the underlying. It's actually the asset that we take out to calculate the underlying. First, Sébastien?

Yes, Giulia. So on your first point regarding TLTRO, I can confirm that there is a positive TLTRO impact this -- on the third quarter. But keep in mind that on the opposite, we wanted PGE without any commercial margin. So all of this should be put in a broader context. Regarding revenues in the coming months or years, as you know, we don't give guidance on this point. Just keep in mind that in the context of low rates for longer, combined with a strong increase of deposits and especially side deposits with an increase by 20% in Q3, i.e. EUR 23 billion, with 75% on commercial clients. So the impact of low rate and this strong increase in deposits, obviously, is pressure on deposit margin. And this kind of pressure could last because we are talking about structural trends, at least for the low rate environment. But in Q3, the positive impact was a recovery in terms of credit volumes, combined with positive impact of TLTRO and gearing, as mentioned. For the coming months, obviously, the level of activity will be key and especially to sustain fees, both services and financial fees, in that context where again there is pressure on deposit margin.

Next question is from Madame Delphine Lee from JPMorgan.

Yes. I just have 2 quick questions, actually. Just on moratoria, the sort of the EUR 26 billion that is still left, if you could provide a little bit of a time frame of when they expire. And also on the EUR 9 billion that already expired, can you just comment on the default rate on these? And my second question is on cost of risk. So you confirm your guidance for 2020 of 70 basis points. Just wondering if you still expect at this point an improvement next year. Any comments in the context of, obviously, the lockdowns that we're seeing? And if you expect any implication -- negative implication from that for your provisioning trend in '21.

Yes. Delphine, I will leave the floor to Diony on your 2 questions.

Yes, Delphine. So on moratoria, the bulk of the remaining will expire before year-end, actually before end of November. And it is mostly in France and some European countries. A very small amount, which goes to '21 is in Italy, where there is a government-led moratoria request across the board. Can you hear me?

Yes.

So in terms of cost of risk for next year, yes, we confirm cost of risk will be lower than this year as a consequence of more Stage 3 provisions, but taking back results from the significant S1, S2 results we have built and this is fully in line with the updated scenarios.

And I think -- yes, please, Delphine, go ahead.

Yes, sorry, I was going to say so -- and on the EUR 9 billion of moratoria that expired, you didn't see much default? I mean, what kind of default rates did you have?

Yes. So it's 1%. It's really very limited.

I think, if I may, it's really very important to understand that beyond the crisis impact on the GDP, there is also a very strong support from government to help the most impacted sectors. And again, we saw that in the first quarter, for example, there is a steady -- there's no increase of NPL from end of June in absolute terms, in euros, no increase of NPL between end of June this year and end of September. And we remain very confident in the quality of the credit origination. What I find personally remarkable is again this trend is true, whether we are in France with guarantee loans, but also in other economies which have been adapting differently. I mean it's true also in Russia. It's true in Africa and Czech Republic. So I think it shows we have a quality of asset, which is, as a starting point, pretty good.

Next question is from Mr. Matthew Clark from Mediobanca Service.

So I was hoping you could give us a bit more clarity on why the operational risk-weighted assets went up this quarter. So what was the change? Why did it affect you this quarter? I think a couple of your competitors saw this kind of increase a year or 2 ago. So I'm curious why this is happening now. And then second question is back to the TLTRO. Could you confirm that you are already booking the benefit of the 100 basis points negative bonus rate this quarter? Or are you waiting until the observation period is over before you recognize that benefit?

Matthew, I will turn to Diony on your first question and William on your second question.

Yes. Yes, on operational risk, it's really technical. It's an evolution of the regulation of the calculation of capital on the advanced model related to some correlation factors, and this is what we implemented.

Okay. So that was the regulators -- the regulator was the catalyst here rather than being any change in...

Yes, yes, it's an EBA spent.

[indiscernible] new standard.

Not sure it's an EBA standard. And let me just say, of course, it's a kind of anticipation of Basel IV. It means that the Basel IV impact, which will be just proportionate to the net banking income, will be reduced by this 15 basis points in practice. William? It was TLTRO shareholder benefit of the 100 basis points.

I think we stated we are now at EUR 62 billion drawings. We account it over time. Just to be clear, it's not exactly 100 basis points because this is pro rata temporaries. Some of it is at a lower rate at 100 basis points. In aggregate, it's around 67 basis points.

Next question is from Mr. Tarik El Mejjad from Bank of America.

So first on GBIS and more specifically on Global Markets. Can you give us an update on your progress in terms of derisking of the equity derivatives? And maybe in the same context, would you -- I mean, do you do you feel you've been actually taking conclusions very quickly on decisions to deal with this business because now it's tempting to say derivatives are recovering a bit in the U.S. and whatever happens in the election in U.S., maybe the appetite for clients will come back? And would you be willing to revise your decision to actually change the structure of these products? And yes, if you can quantify how much have you restored all the impacts of the EUR 250 million of revenues, how much you've done already so far? And second question would be on -- in terms of retail banking and specifically on the outlook you'd have there because we know that percentage has been down because of rates in Czech Republic and so on, but asset quality as well will probably will take time to recover. So what's your outlook in there in terms of returns? Is the 12% we see now could come back to 18% from year or 2 or which would probably take longer?

Yes. Tarik, I will turn to Jean-François Grégoire, our Head of Capital Markets, for the first question. And then to Philippe Aymerich for international retail. Let me just say we are not changing our stance because of the election. Again, the strategic decision we made to adjust the portfolio, look at the long term and we are not switching. But Jean-François, could you give some color, please?

Yes. Sure. So we're talking about the specific exotic products that we have in the broader investment product offer. For example, in the U.S., we are still developing our offer with QIS indices or such or in the listed products. As you know, we are developing specifically on the exotic equity products. So we spend a lot of time to define our strategy for the long term and which is to derisk first by changing the mix of our portfolio when we analyze it product by product. And there are some products where we will be smaller than before. And we will push the innovation that for the last even years and especially quarters were geared toward products that are much more sustainable for us to manage. So this shift of portfolio, this shift of franchise, obviously, cannot happen overnight. But we engage in it. And actually, it is happening quicker than we were anticipating. It depends partly on exogenous sector and the fact that the equity market rebounded, triggered some calls on these what you call products. And so we are going to replace that with some new products. So it's medium-term efforts. It's happening quicker than could have been the case, but it's not over. However, because we complemented that with additional macro hedges on the trading side, we are close to being at minus 50% risk in this specific area, if we consider the major of -- the main risk metrics to follow this business. So again, which is quicker than what we had anticipated. Having said that, we will remain in this business as leaders in innovation. And we could gauge in this quarter that the customer had a very strong appetite for this differentiating product. And so we stick to this plan.

Thank you. Philippe, perspective of international retail, please.

Yes. On international retail for this quarter, I think that we are facing 2 kind of situations. So the first one, it's for Russia. Africa, I would say, consumer finance with 4 trends. The first one, it's definitely growth recovery following the lockdown and the slowdown of the second quarter. Two, for these banks, revenues increased, all revenues almost flat compared to the last quarter. Three, it's an ongoing cost-reduction effort. And as mentioned by William, there is an impressive minus 11% cost reduction in Russia, which is we are definitely bearing the fruits of all the optimization efforts, which have been implementing during the last year. And the fourth comment on this first category is a cost of risk which is increasing, but with a big component related to forward booking. The second category, it's Czech Republic and Romania. Again, I would say 4 comments, a good level of activity. You see the numbers. For KB, for example, there is a plus 5% regarding loans outstanding, plus 7% regarding deposits compared to last year. The second comment is yes, NBI for this quarter, it's down. I would say there are 3 components. The first one is, of course, impact of the decline in the market rates with the same kind of impact that we have now in France, notably on deposits. The second component, it's a lower activity compared to last year. And we have, for these 2 banks, a kind of price effect relating to the payments, the fees on payments because now we have to align the prices for euro payments and local currency payments. The costs for this quarter are up in these 2 banks because we are still investing a lot to reinforce these banks and to prepare them for the next transformation phase, but all the other costs are strictly under control, as mentioned by William. And regarding the cost of risk, again, a big component of forward-looking and just keep in mind that last year, the cost of it was extremely low. For KB, for example, it was only EUR 2 million. So overall, of course, all these banks will continue to work on the cost base, on the revenues. They are definitely still part of a growth story and profitability story. And just the significance of that, they want to mention that as mentioned by Frédéric, KB has an Investor Day today and are confirming a target of 40% for cost income and of 15% for return on equity.

Next question is from Madame Lorraine Quoirez from UBS.

Just 2 quick questions for me. The first one is, do you intend to extend the date at which the state guarantee loans in France will be repaid? And if so, this is going to be systematic? Or will this happen on a case-by-case basis? And my second question would be how would you use the excess capital if effectively the regulators tell you that you cannot distribute it, all the excess capital or at least you can only distribute very little because, obviously, we are waiting for regulatory update in December? And so if you cannot distribute that at all, what options do you have in mind?