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

Ladies and gentlemen, welcome to the Société Générale Conference Call. Frederic Oudea, Chief Executive Officer; and William Kadouch-Chassaing, Deputy General Manager, Head of Finance, will present the group 2020 results. Gentlemen, please go ahead.

Yes. Good afternoon to everyone. Thanks for attending this call. I hope you are all well. Let me just welcome Severin Cabannes. As you must have heard, Slawomir has taken over Severin Cabannes as Head of GBIS activities. And with all the management team, he will help me to answer your questions after a short presentation, which I will deliver with William Kadouch, our CFO. So let's immediately turn to the presentation and page, Slide 4. Just a few key highlights for the fourth quarter results. First of all, this quarter confirms the rebound that we observed in the third quarter despite a still uncertain and sometimes challenging environment, with revenues which held well, up 1.6% compared with the third quarter and down by moderate minus 2.3% compared with last year. Retail activities remained resilient. Market activities confirmed their progressive normalization. And Financial Services and Financing & Advisory were very strong. Second, we have complied with our major guidance. We had a target on cost. We are landing exactly there with EUR 16.5 billion of underlying costs, minus 5% compared with last year. We will comment a lot on the cost of risk and the quality of the portfolio. You have seen that we were very conservative in the provisioning of the fourth quarter. And despite this, the cost of risk landed at 64 basis points for the quarter, 64 basis points for the full year, at a lower level than expected, and with EUR 1.4 billion for performing loans, which is a bit better. And third capital, regarding the capital Core Tier 1 is strong at 13.4%, well above our guidances. We'll come back to that. When I see 2020, let me just highlight beyond the results. I think we have really put forward some key strategic initiatives, which will pave the way for the future. Obviously, we announced the combination of our French retail network. It's a big important step forward to maximize the client satisfaction with a new bank, which will be more efficient; as well as accelerating the development of Boursorama, our leading online bank in France. We also presented a very promising trajectory for ALD. ALD, which is also releasing very strong results today; and KB, our Czech subsidiary. And again, regarding global markets, we will come back to that, I'm sure, during the presentation and our discussion. We are really well on track on the redesign of our product investment solution with structured product portfolio, and this is something positive. A word, of course, it's very important on shareholder return. As you know, we are again allowed like European banks to resume payment of dividend. So we are proposing to the general meeting of shareholders a cash dividend of EUR 0.55 per share. It's line with the maximum according to the ECB recommendation. But we aim to complement this distribution with a share buyback program, which took place in the fourth quarter of 2021, provided, of course, the ECB retains its recommendation in September. Before entering into the figures, just 2 words on to structural trends that this crisis is accelerating and which will be a focus for all of us in the coming years. Slide 5, first, on the ESG. Our leadership is recognized in our best-in-class 2020 extra-financial ratings, as you can see on the slide. Certainly in energy transition, we end #2 worldwide in renewable energy financing for 2020 and #1 in advisory. This is really a significant achievement. We have, as you know, leading expertise there. And just to put this market in perspective, it's a USD 2 trillion market. It's growing at 15% a year. And when we just look at the floor, through investments in 2019, it was $280 billion. So it's something, which is big and which will be bigger and bigger every year. We have started to align our credit portfolio, and in particular, reducing -- announcing a reduction of our portfolio for site energy, which is a paradigm shift with the development, obviously, of our portfolio in renewable. But beyond that, as you know, ESG is very diverse in domain. And actually, that makes also the complexity of that so diverse. Let me just highlight that we are very well recognized as the native bank. We rank #2 worldwide according to Vigeo Eiris in the behavior that we have with our clients. And in terms of diversity and inclusion, we have also here ambitions. We have more to do here. Let's remain humble, like many companies. But we aim to have a 30% of women in our top 200 management position as well as our top executive committee. And we are going to make progress there. We were retained in the Bloomberg Gender-Equality Index for a second year in a row alongside just 380 companies worldwide across 11 sectors. The second dimension, which is, of course, key when we should think about the transformation of our business model and our way to operate is, of course, digital transformation, the growing usage of digital technology. And we have now a very comprehensive benchmark that we use to monitor our progress. You can see here some percentages regarding our different activities. And let me highlight, of course, for example, Boursorama as well as our Russian subsidiary where we saw actually a strong increase of our digital sales this year. We have, I think, built a pretty robust foundation in terms of IT. And we have more to do there, like all banks. But as you can see on this slide, we have, for example, 80% of our infrastructure on the cloud. It's a hybrid cloud. So predominantly, it's still private that we developed. Progressively, we also access public cloud as well as the usage of artificial intelligence with 290 case usage. We've already some significant benefit in terms of efficiency and revenues. And last, but not least, I think Société Générale as ultimately a bank able to think about new business model. Boursorama is a good example of that. But this -- in 2020, we were able to further invest, for example, with the acquisition of Shine. It was, again, traditional bank. It's a different way of thinking -- providing banking services and beyond. But also with Reezocar, which is used -- online used car sales platform for individuals. It's also true with the acquisition of Treezor, which is providing actually core banking system to neobanks to competitors [ if I'm not mistaken ] but we are happy to do that. And as well as a more disruptive business model with an internal startup that we have developed, which is called Forge, which works on everything which is related to digital asset, crypto asset, as you know, an area with -- which is developing, for example, in U.S., but also with -- in close contact with regulators in Europe. And so here also, we see good opportunity in the mid-term, of course. Now I will turn the floor to William, who will comment more precisely the figures.

Thank you, Frederic. Hello, everyone. I hope you are in good health. And I thank you for the interest you take in our company. Now I turn to Page 8 with the key highlights of Q4. There are 3 key elements for us. Number one, we have positive jaws this quarter. When you adjust revenues and costs for perimeter and foreign exchange impact, you end up with revenues down 2.3%. And costs are down 3% on positive jaws. And as Frederic said, this is on the basis of resilient retail, strong growth in Financing & Advisory and Financial Services and normalization in global markets combined with constant cost effort. Second point, contained cost of risk. Cost of risk stands at 54 basis points annualized for the year. It is important to note, as Frederic did, and that it is mostly related to Stage 1 and Stage 2 provisions, which amount to 29 basis points within the 54 basis points, affecting the quality of the portfolio. And third, resilient profitability comes from the fact that we had another conservative Q3 of decent profitability, EUR 631 million underlying and EUR 470 million published. Let me be more specific on what it contains. We have in the published -- in net income the restructuring -- the factoring in of the restructuring charges of about EUR 210 million, which pertains to the cost plan we have launched in market activities and some support structures. And we have also the impact of the sale of SG Finans, which has been closed during the quarter under IFRS 5 for EUR 101 million. [indiscernible] a noncash item as it relates to currency translation. Costs. We would like to highlight what is on the Page 9, which is the fact that this is the second year in a row where we have been able to decrease cost in absolute terms. So we meet the target, as Frederic said, at EUR 16.5 billion underlying cost. To get to the reported, you add the EUR 200 million I just referred to pertaining to cost to achieve our restructuring charge. What is important to note is that we have obviously some additional costs during the year. Single resolution funds contribution increased. COVID related costs, as we had said, for about EUR 100 million. We see some cost reduction spending from M&A and they roughly compensate. And then you have EUR 800 million cost savings. I would like to stress the fact that we consider that within this EUR 800 million cost save that we have achieved in 2020, we consider that 60% are structural. The structural component is largely explained by cost-cutting initiatives that we had launched in '19, 2019 in CIB in headquarters of International Retail, in the headquarters of French Retail and other efficiency initiatives, plus some initiatives that we have taken in 2020 in the context that you know, which we consider will bear fruit over time. And then there is a more variable part in nature within this EUR 800 million as it is logical. Looking ahead, I want to stress as well that we reiterate our strong commitment for the decrease in the underlying cost base by 2023 relative to 2020. So 2020 cost base down relative to 2020. In other words, this is based on the execution of plans we have largely launched already, the EUR 450 million decrease in the cost base of Global Markets from '22, '23, as we said. The portion will be executed as early as 2021. EUR 550 million (sic) [ EUR 450 million ] decrease in cost base on French Retail Banking from -- in 2025 relative to '19. We have already mentioned that with Sébastien Proto a few weeks ago. And further reductions that we had alluded to, including further industrialization of process and support function. For 2021 precisely, we're still the company with positive jaws. So this is a clear objective for us. We see a better outlook in revenues in 2021. And we will maintain a very strict discipline on costs. We expect only a slight increase accompanying business recovery. On the cost of risk, much has been said already with the 64 basis points to be compared to the 70 basis point guidance we had given. We see 2021 as the year where the cost of risk is expected to decline relative to this 2020 level. One point I would like to highlight pertains to nonperforming loans ratio. As you can see, it remains fairly low, and combined with a different coverage ratio. In absolute term, the inventory decreases, because we are able to sell part of these inventories or to do some write-offs, so we continuously active management. We give you more detail on strategic initiatives on the cost of risk, because we know that there are obviously a legitimate question on that. If you turn to Page 11, you will see the split between Stage 1/Stage 2, both for the quarter and for the year as well as between the period. And as Frederic said, for the whole year, Stage 1/Stage 2 explains 41% of the provisioning. And for the Q4, it explains 53%. So it's a very important number to keep in mind for the future. Turning to debate that is active in the marketplace, and we have questions from you in the previous calls, which is the exposure that is left on the balance sheet pertaining to COVID-related measures with moratoria in the countries where we have accepted them or state guaranteed loan, particularly in France. The point -- there are 2 points we would like to make. Number one, we do not observe a significant deterioration of the credit worthiness of counterparties at the exit of moratoria. You see here the 2% -- 2.2% of total moratoria is Stage 3 for -- as far as we are concerned, the actual short effects are actually lower. And that is for all areas where we have moratoria. We have a 7 point in manageable residual exposure. Take -- we have more than 85% on moratoria, which has expired. And if you look at state guaranteed loans, you can see that the ratio exposure we have is about EUR 2 billion. 90% in average of the amount is guaranteed. And we have assuming what Banque de France has been hinting at that maximum, we could see a 5% to 6% potential default. That's obviously a very manageable exposure, knowing that we have already provisioned a large portion. Turning now to capital. As Frederic highlighted, Core Tier 1 ratio is spent at the end of the year as 13.4%, which is obviously well above our guidance for the year. This is equivalent to a buffer MDA of 440 basis points, which is to be compared with our midterm target of more than 20 basis points above MDA. What that explains the growth between Q3 and Q4, which is of about 30 basis points, is, number one, organic capital generation, 27 basis points. Number two, synthetic decollateralization. We continue to do synthetic risk transfer. We did almost EUR 4 billion of it during the quarter, 12 to 14 basis points. M&A, 10 basis points, stemming from the sale of SG Finans. On the regulatory, you have both headwinds and tailwinds over the quarter. You have obviously 36 basis points of TRIM. For the whole year, it is 41, so 36 for the quarter. And you have, as expected, the tailwind from the change in the prudential accounting for software of 16 basis points. When you look at the rest of the balance sheet, optimizing each and every metric, they are strong. Capital leverage ratio is 4.7%. And on the liquidity reserve, we've completed 40% of our program. Liquidity reserve, you have seen that, I'm sure, in the supplement, stands at EUR 243 billion. We give you the amount of outstanding of TLTRO. We know it is an area where we have questions. On the going forward, the target we have, and I insist that there is a target clearly, for us, is to run the company with a buffer above MDA at any point in time, i.e., including after Basel IV, of more than 200 basis points over MDA. And that's obviously factoring the fact that we want to fuel our business through organic RWA. We want to come back to cash distribution based on the 50% payout. And we account for the remaining impact of TRIM as well as Basel IV. On TRIM, we think that we could have another close to 30 basis point impact in 2021. For Basel IV, we update the figures with the latest information that we have. We know that there was an EBA call for advice based on the EU Commission request in December. So we have adjusted our numbers on that basis, plus the forecast balance sheet. And we come up with an impact of EUR 39 billion additional RWA in 2023 or roughly 115 basis points. That includes FRTB. So this is to be compared with the previous number we had given to you, EUR 36 billion excluding FRTB. Now we see EUR 39 billion, including FRTB. For 2021, we think we will land well above this target. A few things I've already mentioned, such as TRIM, will impact the core Tier 1 in 2021. The dividend, we will go back to the 50% provisioning I mentioned. But I want to mention as well that should we be authorized to do the share buyback program that Frederic mentioned in Q4 2021, there would be an additional consumption of 13 basis points. So another way to look at it is to say that our pro forma Core Tier 1 at the end of the year is 13.3%. I won't comment to the next page as usual and turning to the businesses and not obviously commenting [indiscernible]. French Retail. As you can see, we continue to have progress in all franchises so that when I look at outstanding, of course, at pace that is lower than what we had pre-crisis. One area, which is to be noted particularly, is the strong growth of outstanding for corporates and professionals, 25%. That includes the state guaranteed loan. Outside of it, it's 2.3%. But we continue to make progress in insurance. Unit-linked contracts are up. And as you can see, property and protection -- and personal protection premia are up as well as the P&C. We have private banking net inflows and Boursorama at another record year. What is to be noted in the outstanding is a deposit growth, 15%, which explains why we continue to see a lot of pressure on the NIM. And if I turn to the next page, obviously, you can see that this is a business that is resilient, but still see some downward pressure, particularly on the NIM side. NIM is down 4% year-on-year. In the fourth quarter, it's up sequentially. We continued to have negative impact from deposits, interest margin compensated by volumes on the credit side with margins, which hold reasonably well. Commissions, the same trend as we had seen in Q3, which means that it's down year-on-year, but strongly up in financial fees and down in services. Still great discipline on cost. And all that leads to a 6% return for the year, it's 3.5% for the quarter, 5% when you exclude Boursorama. If I turn to International retail Banking, there again we continue to see, fortunately, growth in loan outstanding, more even so on deposits, as we see in Western Europe. Obviously, the pace of growth in the loans is lower than we had -- than what we had pre-crisis. Except for some areas, we see a clear peak in activities. You see that in Russia, for example, we are up 18% in mortgages. Over -- across all these regions, we have cost discipline. When I look at International Retail particularly, let's remember that the return for the quarter stands at 10%, 9% for the year combined with the contribution of EUR 150 million for the quarter and EUR 531 million for the year. Financial Services, which is the next page, has obviously a very good quarter. Financial Services all together post revenue growth of 8% for the year-on-year in the fourth quarter, combined with the return of 20%. So you have a gross operating income up 12% area and the contribution to the group net income of, respectively, EUR 226 million for the quarter and close to EUR 800 million for the full year. You see this is across the board, particularly strong for ALD, with revenues up 14%, life insurance is up 1% as well as [indiscernible] being up. And in total, when you look it IBFS, it continues to be an area where we see above-average profitability at 14%. We have positive jaws in the quarter. And obviously, we see, as we see in other areas, a much better pattern towards the end of the year than what we had in Q2 as [indiscernible]. Global Markets & Investor Services, turning to GBIS, that's initial term. You have here a few message. First of all, we see the rebound in market activities that we had observed in Q3 with revenues just above EUR 1 billion for the quarter, which is that overall -- which is to say that overall, the average quarterly revenues in market are back to EUR 1.1 billion in the second half, 44% more than the first half. And this is more in line, as you know, with the historical average. Equities is up 12% in Q4 related to Q3 and down 7% year-on-year. What is important to note is that equities are back to the EUR 600 million type of revenues that they have usually. In the context, where there is the implementation, we have done the implementation of the derisking we had talked about. I'm sure you will have questions from my colleagues. To be noted, Asia was particularly strong in equities this quarter. FIC is down year-on-year at 16%. But if you look at it on the year -- on a full year basis, it is up 21% and adjusted for the one-off activities. We will certainly comment that with your questions, but I want to highlight the fact that we think it's fundamentally linked to a mixed effect. We are, as you know, very strong in the flow rates as well as in Europe. And that was important just to put a few casing points particularly strong for credit and the U.S. In these 2 areas, credit flow and U.S., we post very strong growth as well. But fundamentally, they are less present in the total portfolio. Talking about Financing & Advisory. This is obviously a very strong quarter, 9% growth year-on-year combined with a return, which is satisfactory, a little more than 18%. The growth is across the board. Financing activities are very dynamic, plus 5%. Investment banking, including DCM and acquisition finance advisory, as you know, is up 13%. And transaction banking is up 4%. So across the board, a very good performance, and we will continue to fuel that business. Asset and Wealth Management is more neutral, with a good performance on Lyxor, plus 13% in revenues, decreasing private banking revenues. But there, one has to make a difference between commercial revenues, which are stable. And we have net new money in private banking. And the pressure on interest margin, which is what you can see in every retail activities operating in mature countries. So in total, when you see Global Banking and Investor Solutions results back to a more decent underlying return for the quarter, 9%, still low for the year, given the first half, as you know. I would like to highlight the very strong decrease in costs. Costs are down roughly 10% in -- year-on-year in this area. And the group net income is up year-on-year at 46% when adjusted for perimeter and foreign exchange. Corporate Centre, nothing much to mention, except for the fact that it does account for IFRS 5 impact on SG Finans, that impact on that account for some restructuring charges. When you look at the operating expenses in the quarter, Q4 '19 relative to Q4 '20, optically, you see an increase in '20. In fact, there was -- if you account for some big effect, they are stable year-on-year. I turn now to Frederic for the conclusion.

Thank you very much, William. Slide 27. Just to add a few words on 2020, taking a step back. I think we did a good job with our clients. We were alongside them. And it's a kind of a goodwill that I think we've built. It's true beyond the Société Générale, I mush say, for the banking sector in France. When I look at the image of the sector, and it's positive. I think we did also a good job with our staff, protecting their health and leveraging on a very strong mobilization, which ensured the smooth functionment of the bank in extreme circumstances. And clearly, of course, we had a difficult year in terms of financial performances, which impacted the confidence of the market. But I really believe, and I think it's reflected in the fourth quarter and the second half that the current share price does not reflect the valuation of the bank, the intrinsic franchises. We had really 2 halves in this year. We had the first part. We've offered the specificity of the impact of the market on one portion of our capital markets activities. It should not hide that the rest of the business did pretty well, facing, of course, the extraordinary circumstances. And the second half shows definitely the capacity that we have, first of all, to adapt the portfolio of products, and again, to take advantage of the normalization of the environment. And I think we've really laid a pretty ambitious and value-creating foundations for the future for some of our core businesses. I have already mentioned the combination of our French Retail, ALD, KB and Boursorama as well as transversal initiatives regarding ESG and digital transformation. And when I look at 2021, remaining realistic, of course, with still uncertainty on the environment, but with probably the central scenario, which should be that the vaccine should help progressively to come back to something more normal in terms of the functionment of the economy. Our focus is really to deliver, to execute and offer to take advantage of that to result confidence with the market. We will effectively focus on the trajectory that we have presented on our businesses. We will carry on accompanying our clients. A lot has to be done to help them to find the right approach when precisely things are improving. We will maintain a very strong discipline, a very strong discipline on the costs, a very strong discipline on risk-taking. And really, I'm very encouraged when I look at the quality of the portfolio, like William has commented, and of course, on the capital usage. And we will, of course, then finalize the trajectory -- the strategic trajectory for in particular GBIS. We will present in May 10, with Slawomir, where we want to go on the back, of course, also the first quarter results. And we will have then achieved this repositioning of our portfolio. We will also, of course, present, beyond in the second half, our ESG strategy. And in terms of distribution policy, which is important, where we want to come back, again, to 50% payout ratio. It will include a component of share buyback. And as you can see, we are sizing the opportunity already in 2021 to implement this policy. The EUR 0.55 is actually in line fundamentally with this policy, but also adding a share buyback at year-end. That's what we wanted to say. So we entered into 2021, I would say, with confidence that it will be a year of rebound for Société Générale. Now let's turn to your question. Let's stick to the usual discipline. Please have 2 questions per person. So please go ahead. Floor is yours.

[Operator Instructions] The first question comes from Delphine Lee from JPMorgan.

Delphine, you might be on mute. So I don't know...

Yes, sorry, I was indeed on mute. I'm sorry about that.

It happens. Yes. No, don't worry, that's fine.

So 2 questions. First one is going back on capital. You're basically at 12% Basel IV. So the question is, why not increase the payout ratio for '21, for example? You're already paying over 50% for 2020. So just wondering your thinking for '21, which is at this point unchanged. And related to that, what's the rationale for not increasing the share buyback component, both for '21 and actually 2020, given where the share price is? And then my second question is on the revenue guidance, which seems to suggest decent, let's say, growth for 2021. If you could provide some color on -- does that assume further pressure in French Retail? And what is your assumption for CIB?

Yes. Well, Delphine, I can take these 2 questions. And of course, we can go more in detail with additional questions. But let's just start with revenue. Clearly, we expect a rebound on revenues. It will vary according to the businesses. It's, of course, particularly true on capital markets. And again, during the questions, we might enter more in detail. Of course, we had this impact in the first half of 2020. The kind of strategy we are pursuing means that we should not have that. And we have a positive start of the year, as we've said. Of course, we want to be prudent and wait a few more months. But I think we are moving in the right direction there. Beyond, I think we are positive for our financial services and financing activities. And then on the retail side, it can still vary, of course, depending on lockdown, things like this. But we might see the same kind of trends and same thing we will answer probably in the detail when we will comment on the specific businesses, but with sometimes, of course, erosion of margins related to the rates, and at the same time, probably an improvement of fees. So yes, overall, if you wish, the perspective for revenue is, of course, more positive compared with 2020. In terms of capital, listen, we want, of course, to remain flexible, and 2021 will be still a strange year. We are capturing what we can immediately distribute till end of September and might have the opportunity to complement in the last part of the year. We consider that the kind of program we are proposing, equivalent to the dividend, is always to definitely distribute something attractive, while at the same time, protecting, creating a strong Core Tier 1 at the moment of still uncertainty. So trying to give maximum comfort to investors on that front. And then we will see where we stand end of the year in -- beginning of 2022, we'll have much more clarity on many topics, economic environment, the real impact of this crisis, whether or not Basel will be implemented in 2023, which is probably a conservative agenda on schedule, and when you think just about the political process, which will have to take place. So I think we will have more visibility there to adjust if needed. So we want to remain flexible, but we consider that we are doing -- we will do as much as we can, of course, given the constraints in 2021. Next question?

The next question comes from Tarik El Mejjad from Bank of America.

Just a couple of questions, please. First of all, on costs, I mean, you guided for slightly higher costs in '21 versus '20. Could you take us through potentially the moving parts, i.e., the French Retail, restructuring charges and then the savings in CIB and so on? And what basis you use? Is it like EUR 16.5 billion or EUR 16.7 billion for your guidance? The second question is on the revenues in CIB. So how much of the revenue erosion driven by derivatives derisking -- derivatives business derisking is included in Q4? And how much should we expect in the next quarters?

I will turn to William on your first question on cost perspective and then Slawomir on your question regarding revenues for GBIS and capital markets more particularly. William?

There are actually 3 components of your question, if I may say so. The first is what is the base that we look at for the guidance. And this is the underlying cost base is EUR 16.5 billion, not the EUR 16.7 billion. The second part is, can we qualify the guidance of a slight increase. I think in the sense, if you consider that we had between '19 and '20 the 60% of structural cost save, you have at least an indication of what is fundamentally a real decrease between the '19 and '20. We think there could be some inflation of expenses related to a potential business growth. So a bit of discretionary expenses, a bit of variable remuneration, plus, of course, some increase in taxes with SRF contribution, which is meant to increase. So these are the components. But I don't think it makes sense to go in each and every businesses. I mean that's the type of things that we can see. The third component of your question was what about CTA. We have EUR 200 million here. We have announced that we would have additional restructuring charges potentially in 2021. I think it has been said already by my colleagues talking about French Retail. And you know that we have a number of initiatives to decrease the cost base over time. What I want to say is that we are of the view that CTA over time is manageable because of the capital position, because of things we can do to offset at least some of it and because from a shareholder standpoint, again, the dividend provision, back to 50% of 2021 results and forward, is based on underlying.

Thank you. Slawomir?

So on the revenues, specifically on the Global Markets side and on equities, it's a function of, obviously, the derisking and redesign that we are implementing and which is well underway, but also, obviously, of the market conditions. And in particular, the dynamic between supply and demand for these particular products, which has been favorable to the supply side. Basically, the margins have increased and are helping the overall equation. So the answer would be, we are close to the maximum impact, not completely there, assuming a stable situation in terms of margins on this particular segment.

The next question comes from Stefan-Michael Stalmann from Autonomous Research.

The first one relates to TRIM and your synthetic risk transfers. Would it be possible that you guide for how these 2 items split roughly by division? And also, is there a connection between the 2? Have you done the synthetic risk transfers to cushion the impact of TRIM? Or would you think there's a potential for more synthetic risk transfers going forward? And then the second question, going back to capital markets revenue in particular markets. Fixed income looked a bit anemic this quarter. Was there any particular factor driving this, please?

Stefan. William will answer your first question, and again, Slawomir your second one. William?

With regard to TRIM, I think we had said 2 years ago, I think, that TRIM related to all businesses, but there was [ a work ] to be expected more in the CIB activities. And so this is true as well for the quarter and for the year. Now with regards to the second part of your question, which is, do we manage synthetic decollateralization in a link with TRIM, I'd say that yes and no. Of course, we are sensitive to the [indiscernible] management of all the divisions, which -- for which we want to tame the RWA growth outside of the organic growth that we have planned. And OTD, of course, as well as synthetic decollateralization are useful tools. But in fact, when you look at the quarter, we do it across all areas. In this quarter, you have something in F&A. You have a significant portion in French Retail. And you also have a portfolio in consumer lending in Western Europe, so within IBFS. So it is fairly spread. What we very focus on as our synthetic decollateralization are concerned is the return. So we don't -- we do only things, which have a positive return for us, i.e., we can do at a good price.

Thank you. Slawomir, on the fixed income?

Sure. So I would say a soft quarter for FIC with no material idiosyncratic events. That would be, so by definition, very specific to SocGen. What is specific to us is the mix. And along the lines of what William said earlier, our product mix and our geographical footprint mix is different from, obviously, the big American players with some of our European peers. And so euro rates are an overweight of ours. And clearly, this was the softer part of the market. And the second, not so much specificity, but a business we're well engaged in is all of the financing, and clearly, very thin margins on the back of ample liquidity in the system. And so these 2 things were a drag. And they are a skew of our mix from a geographical perspective. Without going into the exact details, but we had a very strong performance in the Americas, a decent one in Asia, and again, in Europe, something much softer. Lastly, on the credit side, same thing, good performance, but much smaller than compared to some of our peers. So it's mostly driven by the mix. And marginally, I would add that while, to a much lesser extent, there was also some degree of redesigning going on throughout the year in the structured side of that business. And so from that perspective, the contribution, while not negative, was much smaller than in the past. But if you look at the entire year, I would argue that it's still, especially taking into account the structured products hit in H1 in fixed income, it was a fairly decent performance at plus 15% versus last year.

The next question comes from Pierre Chedeville from CIC.

Can you hear me?

Yes, yes.

One of your competitor recently said that regarding the French Retail business, most of the profitability, more than 70%, 80% came from SMEs and private banking business, which were, as I said, if you are not a [ mutualist ] with more than 25% of market share, mass market business is not profitable anymore. And you have to focus on SMEs and private banking. And you said, in that context, in a low interest rate, if you have a small market share, you have to develop priority -- in priorities, sorry, SMEs linked with private banking, which means that you have to accelerate the closure of your branches. And he mentioned the number of 1,000 branches in France, for instance, for its case. So my question number one is, do you share this analysis? And do you think that you will have also to go to these numbers of branches. And my second question is related to ALD, which made a very good performance this quarter, mainly due, if I understand correctly, to used car. But in the longer term, if you replace cars by [indiscernible] and bikes, I know [indiscernible] I am a rider, I was wondering at the end of the day, if you add more seriously the impact of remote working, at the end of the day, my view is to say, is it not fundamentally deflationary business? And what is your view on that? And isn't it time to sell it at the top of the peak?

Pierre, I will let Sebastian elaborate on what we do in the French retail. So [indiscernible] if you may complement on Boursorama, which, as you know, we are the only bank with such a successful alternative model for individuals. And then [ Philippe, ] who is the Chairman of the Board of ALD, comment on your questions. And before we all move on [ continent ], we might think about electrical parts. But she will comment. Sebastian?

Let me just remind you that as far French retail activities are concerned, half of the revenues come from [ corporates ] and professionals and 20% from [indiscernible] clients. So if I add the 2 components, that means for Societe Generale, retail businesses on the French market, it's 70% coming from corporates, SMEs and [indiscernible] clients, which makes us a little bit different, I would say. That being said, clearly, our objective is to reduce cost to serve for mass market. That's what we are trying to do very hard. We try to do -- we are trying to do, and that's something which makes us the merger between [indiscernible] and [indiscernible] even more [indiscernible]. On your last point, regarding the number of branches. Again, I would say that we closed a lot of branches over the last 5 years. Let me remind you that our objective in 2015 was to close 20% of branches in Société Générale network and 30% of back offices, that's what we did. And we announced last December that we will -- our objective is to close, again, 600 branches between 2021 and 2025. And we explained why, in our view, a number of branches should equate in the coming years.

Thank you. Philippe, on Boursorama, a few words.

Yes, thank you. Yes, as you remember, as we explained in December, we do believe that there are 2 specific trends in the French market. The first one, which was described by Sebastian with clients. Notably corporate, professional and mass [indiscernible], who still wants both digital experience and the capacity to have access to the human expertise. And the answer for these clients is obviously our 2 networks and in the future, the new bank. Simultaneously, we have also an important number of people and clients. We want only a full digital experience. And we have also the answer for these people which is, as you know, Boursorama. Boursorama had a very good 2020 year. Still very robust regarding the acquisition of clients, including, for example, in December, with 72,000 new clients, which is a record. And simultaneously, as I always said, we are monitoring very carefully all the key indicators, acquisition cost, revenues per clients, deposits, loans and all these indicators are definitely in the green zone. So we are very comfortable with these 2 [ axis ] to address the French market.

And Jean on ALD?

Yes, thank you for the question. ALD has had a very strong performance this year, both in terms of operational capacity margins and very good remarketing, both in volumes and prices, which was a bit of unexpected seeing the pandemic situation, but it did a very strong secondary market. It is not at all our view that people will move to [indiscernible] or bicycles. And we believe that there is a long-term structural trend shifting from ownership to usership for cars and hence, really favoring the model of ALD, who is already a leader in terms of fleet financing and leasing and has a very good positioning also in privacies. So we continue to have growth. We have signed a very interesting partnerships both with manufacturers, such as Tesla or Ford. But also working with corporates and banks. And as you know, we have announced our 2025 -- strategic plan move 2025, where we target a significant increase in terms of contract of EUR 2.3 million. And we also build on a second very important trend, which is electrification of fleet. Where we target 30% of new deliveries to be electric vehicles. And ALD is already very well positioned in this segment. So we still see a significant growth in the market and are well positioned to be a mobility leader building on structural trends.

The next question comes from Omar Fall from Barclays.

Sorry, could you -- can you hear me?

Yes, we can hear you, Omar.

So just firstly, just going back to costs. I wanted to clarify the commitment that 2023 underlying expenses will be lower than 2020. Does that mean that costs will keep growing and then you get a sort of cliff effect in 2023 or you'd expect a gradual decline from 2022 already, especially as some of the EUR 450 million in savings from GBIS come through. I just want to make sure my kind of reading comprehension isn't too bad. And then the second question is just if you could update us on revenue and/or -- and if you don't want to touch on revenue, but at least some loan growth outlook for French retail excluding -- the state-guaranteed loans were like in the low single digits. So do you think that's sustainable? Because even with the recovery out of the pandemic, there's obviously a debate around corporates having to cut their gross debt and question marks around mortgage growth. So I'd love to get your insights on that.

Yes. Yes, Omar. Okay. So I will let William comment on the cost and Sebastian on the volume and the activity and credits. Just one thing to add to understand the perspective on [indiscernible] more retail is also the -- actually well, how we compute that, I think, because it's important. So William?

Omar, very simply put, we want to run the company with positive jaws through the period. We see a slight increase in 2021, consistent with a better outlook on revenues after a very strong decrease in 2020. We see a decrease in '23 relative to 2020, but it's not a key effect. From '22, we expect stabilization and downward trend to resume.

And that's just on the on the volumes of credit, just to explain that we have not computed the benefit of the TLTRO, which will help also on the revenue side.

Yes, maybe to explain. So effectively, a large part of the potential benefit from -- stemming from TLTRO is associated with French retail to the point of Frédéric. In 2020, we have a very limited benefit stemming from TLTRO, both from the actual -- the existing scheme and the potential new modification for which we have recognized nothing as of yet. We have a prudent approach, which is to recognize the benefit of such modification when we are certain that we are able to meet the requirement as far as volumes are concerned. So we see the benefit of the existing scheme, '21, '22, '23 and potential additional benefit stemming from the new scheme that has been announced in December that could be seen in our revenues starting towards the end of 2021. And again, '21, '22, '23, as we recognize the benefits. As you know, over 3 years, we have made it clear in the appendices of our [indiscernible].

Sebastien on the activity on the loan side.

Yes, Omar. So on the credit activities, [indiscernible] was more dynamic. On the retail side, we had good momentum in volumes, but also in margin in home loans. And on the corporate side, we faced -- we had high volumes in medium-, long-term credit projection. And your question was also about what is exactly the momentum if we exclude PGE. And so in terms of outstanding, the growth for medium, long-term credit is plus 2.3%, excluding the government-backed loans. So by plus 2.3%. And if -- so that's positive on medium- and long-term, credit positive on the retail side for home loans and less positive for consumer loans and short-term credit facilities.

I guess I was really interested in your thoughts going forward on the outlook for credit growth in France, if I may.

As we said, and as Frédéric said, I'll talk about the scenario for France -- for the French market is progressive in continuing recordly. Obviously, depending on the [indiscernible] context. But central scenario is more positive.

And Omar, if I may. First, when you look at the Q4 macroeconomic figures, first, the investment by corporates remain relatively good and of course, again, if the people have the feeling that pandemic will be behind, thanks to the vaccine, I think, you could think about the next generation. Consumer, I think it's a little bit the same. People save a lot because they can't spend today, and we've seen a rebound of spending when there was the end of the [indiscernible], for example, on car acquisition. So I guess we can have also the same thing if things are improving. That's why we are -- if you wish a big caution, it depends so much on the environment in the coming months. But we consider it should remain relatively robust. And of course, on the guaranteed laws, one of the key question, it was that people reimbursed or not. It depends. They might consider. It's a question of insurance, if I may say, for the price. Same thing, we will know a little bit more in the coming months, what they want to do. So let's -- we will have a little more clarity on this in 4, 5 months.

The next question comes from Jean-Francois Neuez from Goldman Sachs.

Wanted to ask about global markets. In terms of the revenues, so there was a comment that the mix didn't lend itself to the kind of boom that we saw at bigger competitors in fixed income. And I just wanted to understand whether if we -- if -- as is in the market consensus now that boom deflates slightly in 2021, it is right that as a result of this, your expectation, you should outperform peers? And also in equities, I wanted to understand whether there was any mark-to-market effect that was blurring the comparability with last year or the previous quarters in the revenues of equities. In particular, when we observe the factors underlying the hedging performance, they have improved very sharply in Q4. So I just wanted to understand commercial run rate versus maybe the P&L impact. My second question was on the capital ratios, which has progressed very strongly in comparison to expectations. So congratulation on that. In the past, there was the TRIM guidance, but there was also an expectation that you'd have some [ hospitality ] hitting you towards the end of 2020. Didn't look that it was singled out as a factor that your capital ratio at least nearly as much as was initially expected. Do you expect this to happen with a delay? Or is it something that you believe your updated macro projection will no longer [ warrant ] the guidance?

Yes. Jean-Francois, hello, I will pass the floor to Slawomir for your first question. And then to Jean on the downgrade and the rate -- the rating of the counterpart. Slawomir?

So on the fixed income -- Jean-Francois, on the fixed income, I would say well, we would outperform peers if the market conditions would be most conducive where we are overweight versus them. Which is not exactly what I said. I was talking about our own overweight versus what happened in Q4. So I would not necessarily go to argue that we will outperform simply because, say, U.S. rates deflate. It would be -- it would depend on what happens segment by segment. So I would say another way of putting it in all of the segments of fixed income performed reasonably well, we would be certainly closer to the market average, right? But I would not link to outperformance of our peak to the deflation of the current, say, overactivity in credit or U.S. rates, for instance. I hope I'm being clear, please follow up, if I'm not. On the equity side, this is mostly the balanced commercial performance and more a matter of commercial performance. So a decent flow at decent margins. It's not some sort of a windfall coming from much improved hedging conditions. Especially as through the redesign that we're going through, we have vastly improved in my view, the way we operate, but lowering our exposure and lowering our sensitivity in terms of managing the underlying risks. And so the pure risk management of it, the pure hedging result is minimal actually. So it's on the contrary, decent commercial performance. As I said earlier, with decent margins, which have improved, because of the, I would say, slightly lower supply while the appetite was clearly there for these products. So that's the dynamic. I hope this addresses your question.

Sure. And Jean on ratings.

Yes. Indeed, during the year, we kept quite a proactive stance in terms of updating the ratings in the entire portfolio. We do this at least annually at any event. And also, of course, each time we are granted new facility. So we did already take an important part in terms of RWA inflation, which is close to EUR 7 billion this year. It's included in our numbers, of course.