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, will present the group's second quarter and first half 2021 results. Gentlemen, please go ahead.

Hello, everyone. Thanks a lot for participating to this conference call on our Q2 and first half results. As usual, we will make a short presentation with William Kadouch-Chassaing, our CFO; and our whole management team will then answer your questions. Let's start. And if you have the presentation with you, Slide 4, let me just recap the main highlights of this excellent performance for the second quarter. As you can see, a strong quarter when we look at the net result. You have to come back to 2016 in the second quarter, actually, to see a similar number. But in 2016, it was boosted by a strong equity capital gain. So fundamentally, it's probably the best quarter in the history of the group. And of course, a very strong first half. All the businesses contributed, as you can see on the revenue line, plus the 20% on a like-for-like basis and at constant exchange rates, with a strong quarter in GBIS, in Global Markets and Financing Advisory, very good performance in the Financial Services. And across the geographies, a rebound in retail activities. As you might have seen, we are maintaining a strong discipline on the costs, and the gross operating income is increasing by 55% with a strong improvement of our cost/income ratio. Something which is also noticeable is, of course, the very low cost of risk. We will elaborate on this. The illustration of a very low number of defaults while we preserve a very prudent provisioning policy. All in all, we delivered a strong profitability on tangible equity, 10.4% for the quarter in underlying terms. The outlook for 2021 is improved, in our view. We now confirm a growth of our revenue for all our businesses. We confirm improved positive jaws and the downward revision of the cost of risk guidance. Based on this first half, we consider that the cost of risk for the full year should range between 20 basis points and 25 basis. And regarding our capital, you will see that we are maintaining a strong core Tier 1 while confirming our share buyback program for the fourth quarter, equivalent to the amount of EUR 470 million. That means that we will have distributed the equivalent of EUR 1.1 per share all in this year for 2020, while the provision for dividend for '21 and for the first 6 months is already EUR 1.2. So that means that we will adjust in the next 6 months, distribute more than for the full 2021 year. Let's turn to Page 5. I'm happy to answer your question on the ESG. Let me just highlight that what we wanted to illustrate in this slide is that we are now working on innovative solutions in every geography with all kinds of clients, whether it's developed or developing countries, whether it's large corporates, retail or sovereign, as illustrated in Africa. And we are happy to see that our ESG research has been rewarded a strong industry recognition. As you know, we have now included systematically in our research since 2020 a strong ESG angle. I will turn now to William, who will elaborate more in the figures. William?

Thanks, Frédéric. Good morning all. Thanks for joining this call. I do hope you're doing well. Let me turn to Page 7. Reiterating what Frédéric just said on the net income, published net income stands at EUR 1.439 billion. The underlying stands at EUR 1.349 billion after the adjustment pertaining to IFRIC and EUR 85 million of transformation charges, all this translated to a return on tangible equity of 10.4% and 11.2%, respectively. The key element behind this strong earnings growth is on this page is obviously the greater operating leverage of this company. We committed to strong positive jaws, and we have strong positive jaws, improving positive jaws, in fact, sequentially. And this translates into a gross operating income up 55%. Adjusted for foreign exchange, it's actually 60%. And of course, also a decrease in the cost/income ratio to 67%. To put things in perspective, remember that precrisis, our cost-to-income was about 70%. This is true for 2018. It was true for 2019 when we started the journey towards decreasing the cost base. That needs to be compared with the 67% I just highlighted. Logically, this is due -- and that's on the next page -- to the way we manage costs. We want to pursue a strong cost discipline. For the first half, you have an increase, which is a limited increase of 1.7%. In fact, when you look at what's behind that cost evolution, we find mostly variable cost components and the higher IFRIC 21 charges. We had already talked about that in the first quarter. Fundamentally, the intrinsic cost base is flat to decreasing. Strong positive jaws I've already mentioned. And the cost-to-income for the first half at 67%. The second component in the performance is obviously linked to cost of risk. We have -- that's on Page 9. We have a very low cost risk. This is a historically low cost of risk for each and every division. And as Frédéric said, we don't expect the cost of risk to be nearly where we expected it to be at the outset of the year. This is why we decreased the guidance from 30 to 35 basis points to 20 and 25 basis points. You remember it, 2-0, that 10 basis points equates to approximately EUR 500 million on the cost of risk on an annualized basis. Let me point you to the nonperforming loan ratio. It's decreasing to 3.1%. It's not just the ratio that is decreasing. This is also the absolute amount of NPLs. And this is due beyond the improvement in the environment to an active proactive management of NPLs; we sold some portfolio in the retail in Q2. Behind this performance and cost of risk, the only factor, in fact, is the limited defaults, as Frédéric said. We see very limited Stage 3 provisions because we see very limited defaults. You see the EUR 164 million, which we deduct as a very small write-back of EUR 22 million. I say it's a very small write-back because what you have on the right hand of the page is obviously the picture of the representation of our prudent provisioning approach. We keep the EUR 3.6 billion approximately amount of provisions that we had increased in 2020. Core Tier 1, Page 11, you see core Tier 1 still strong at 13.4%, which is 440 basis points roughly above MDA. It's pretty stable, minus 10 basis points. What you have here, the story is pretty simple, very strong capital generation on the back of the results we've just commented. You see 18 basis points, that's after provision for dividends. For the first half, organic capital generation was 44 basis points, to be compared with an historical through the noise, through the cycle, organic capital generation of the company of about 20, 25 basis points. So only in the first half, we had 44. And that helps compensating the cost of regulatory charges for the quarter, all were expected, TRIM and CRR2. We may want to comment if you have questions on that. And as you see, pro forma, the share buyback, this would be the same level, 13.4%. All the other ratios are strong. Let me also mention that our funding program has been completed for the year in good terms, actually, better than what we forecasted at the outset of the year. This is why we speeded up the program. Turning to businesses and starting with French networks. As you know, now we comment first the Société Générale and Credit du Nord and then Boursorama before we wrap up for the whole pillar. You see the dynamics, commercial dynamics on the Page 14, improving. Production -- loan production is improving sequentially versus first quarter and also, obviously, in terms of production versus Q2 2020. It's still not where we were in terms of path to growth -- path of growth in 2019, i.e., precrisis. So this is a good sign to see that it's picking up a bit in some areas, particularly home loans and corporates. Deposit collection remains strong, which is good for the balance sheet, but not maybe as good for the P&L, of course, given the negative rate. On the right-hand side, we have very positive dynamics on the non-balance sheet savings. Life insurance outstanding are up, private banking and net new money, it's record level. And on bancassurance, we continue to make progress with P&C and protection contracts. That is very important because it reflects the strategy we had announced to be very proactive in converting on-balance sheet deposits towards non-balance sheet as well as P&C penetration. Boursorama had a very strong quarter. In fact, you see 168,000 clients acquired for the quarter, up 24% from last year. But when you look at the production, you see that it's speeding up, plus 40% if you compare to the planned acquisition in Q2 '20. At the same time, Boursorama continues to monetize well its client base. You see strong growth in credit, in loans, strong growth in deposits and financial savings and still good growth in corporate orders. When you adjust for the acquisition costs, which are well in check, as far as Boursorama is concerned, [ and that's with ] growth 15% adjusted return for the first half. To wrap up, in French Retail, you see a good growth for the quarter, 8% as well as for the first half with 3%, with the NIM up 1.6%. Very good momentum in fees. Operating leverage translating into a strong Q2 return on normative equity of 14.2%, 15% if you exclude the acquisition cost of Boursorama. Turning to International Retail Banking. There again, you see an improvement relative to Q1 in International Retail and strong growth year-on-year. We had the production on the top of the page, which I won't comment. Maybe a word on the revenue dynamics, 3% in Europe, 4% in Russia, a healthy 17% for Africa. Would you -- should you adjust on some big effect we had in Tunisia last year, that would be still a good 8% growth after a very resilient year for Africa in 2020. And you see this is across the board. Loan production is picking up, but also fees are very strong. To be noted, particularly for Europe and Russia, we are just at the beginning of the Central Bank raising rates. So this bodes well for the coming quarters and year. The profitability stands at a health 17%. Financial Services, very good quarter again across the board. Starting with insurance, you see the outstanding up for life insurance as well as good growth in protection premia across geographies. What is important is what we do in life insurance is quality new money. We have an increase in the share of unit linked. That's very important both for the results as well as the risk profile. The [ issuance of new ] insurance growing at 13% when adjusted for perimeter and foreign exchange. Financial Services to corporates is very much -- it's very much driven by ALD, although we have good trend in leasing as well. You see a 50% -- close to 50% growth. ALD, it's important to note, you have seen the presentation, that it is, of course, explained by the increase in the car sales results, but it's also fundamentally linked to the increase in the contract gross margin. And overall, for the IBFS pillar, same trend, strong revenues, plus 17%, across the board, positive jaws and a return on equity of 20%. Turning to CIB. We confirm what we had said, starting with markets, which is the recovery of our market operations, which has been observed for about 4 quarters in a row. We end up at EUR 1.2 billion for quarterly revenues for market activities. You see equities up above their average in 2019 and their long-term average. You see 21% above 2019. And that's across the board. We will comment that with the listed projects, structured and flows. FIC is down. It is down a bit less than the average of the market, still down relatively to 2019 6%. We benefit from our strong exposure rates on credit. But obviously, 2021 is less [ variant ] for FIC than 2020 was. Turning to Financing & Advisory, strong quarter. To put things in perspective, you know that -- as we told you that we expect 3% growth per annum. So in this quarter, we achieved 13%. We have a strong growth across the board. I won't comment on each and every topic, but you see asset finance and natural resources, notably renewables and some areas, such as shipping, very strong, asset-backed products and transaction banking up 25%. Asset & Wealth Management, let me point you to the 8% adjusted growth for Private Banking, adjusted from an exceptional item we had at the same period of last year. This is on the back of very strong net positive inflows. In fact, the pace at which we collect new money is well above the historical average. We have strong net inflows as well as on Lyxor. And to wrap it up, for GBIS, which is Page 22, same pattern as you have seen with other pillars, a bit more dramatic even, 28% revenue growth. Operating expenses, only, I would say, explained by variable costs. As you would expect, the other expenses are well in check in the program. The cost program is executing well. Positive jaws. And a return for the quarter close to 12% for the first half, is close to 15%. Corporate Center, not much to mention, just to reiterate what we had said in the first quarter. The EUR 85 million transformation charges, the detail of which you can find in the footnotes and as well as in the appendix are only now accounted in the Corporate Center, but they pertain to various areas. That's to help the presentation of our results and the reading by you. Underlying gross operating income for the first half is minus EUR 96 million, so lower than -- better than the usual and very consistent with the guidance.

Thank you, William. Let me just conclude by a few words. As you can see on Slide 25, we have reached a result and profitability which is above the precrisis level. And actually, it's even the best in the last 5 years. It's got to be the highest half year that we recorded again in our history. It is, on one hand, of course, the definitive and positive answer on the question on the specific issue of product structure. The franchise is well functioning. But beyond, I would say, the relentless efforts over the last years to reposition the business model, strengthen the franchises, lower the breakeven and, of course, maintain a strong risk discipline. As I've said, we remain positive for the second half. We tend to think that the economy should do well. We consider that despite the delta variant, with the progress of vaccination, we do not experience a similar lockdown than the ones we had in 2020. We are, again, supported by good commercial activity in all our businesses. We have -- we are confident to maintain the strong discipline on the cost. And as you've seen, we have been very prudent in our provisioning policy, which is a guarantee for the cost of risk going forward and even beyond 2021. So we are really committed to pursue our different strategic projects and, of course, to deliver a sustainable and profitable growth. I think there are opportunities in this market, and we are well positioned to grow our businesses. That's what we wanted to say. Let me just highlight that, at the end of the day, ESG is so core in our strategy, we decided to postpone to the first half our ESG presentation and is included actually in our overall strategic presentation that we might make again in the first half of 2022 to finalize our transitory for the 2025. All right. That's it. Now we are ready again to answer your questions. As always, and I know you are very disciplined, let's stick to this good policy, 2 questions per person. Please go ahead.

[Operator Instructions] First question is from Madam Flora Bocahut from Jefferies.

I'd like to ask 2, please. The first one is regarding provisions. And the second one is regarding ALD and M&A, more specifically. On provisions, the guidance that you provide today implies a higher run rate in the second half of the year than in H1. So just wanted to clarify why and if this is just out of caution. And also, you mentioned it in your presentation, but you haven't touched much to the Stage 1 and 2 provisioning that you did last year. Do you expect that there will be, at some point, more reserve release? And if so, can we expect that this year? Or it's more a story for next year? On ALD, just a quick question because the IPO was partly with the objective to use the shares as a currency for M&A. Obviously, there's been press reports recently about some potential interest around this plan. So can I ask you as a broad question on ALD and M&A? What are the key criteria that you are considering when you think about M&A there? Is it more scale? Is it access to new market, to expertise? And would you be ready to spend a decent part of your excess capital on such M&A?

Flora, I will let Diony Lebot to answer first your question on the rate and, perhaps, elaborate on the performance of ALD, which is actually spectacular for the first half. I'd like to take your strategic question, if I may. And of course, we don't comment on any market rumors. But I would like to highlight, first of all, our conviction that we can grow organically strongly our businesses. And regarding more specifically ALD, what we do and what we have done in the past is to complement this organic growth with a small and bolt-on acquisition with a partnership mindset, which has functioned very well so far. Going forward, in terms of capital usage, we want to ensure that, first of all, we finance our organic growth. We can consider acquisitions that will not have a significant impact on our capital trajectory. That's the discipline we want to keep. And of course, have this strong and attractive return policy to our shareholders, as I said, of 50% of net profit. So this is a discipline, we will keep looking at potential acquisition if there were opportunities. The reason for acquisition, well, we look at start-ups to complement new business models, and we are doing that more and more. We can look at businesses which effectively gives us the scale and so to have cost synergies. I don't think that currently with so much changes we would consider, for example, entering into new geographies, et cetera. So it's more really to further enhance the profitability. And again, we tend to look at start-ups. It's true actually for ALD to complement a very disruptive business model, which I think has a strong value creation. Now Diony, on the provision and again on ALD because I think it's worthwhile.

Yes. Thank you for the question, Flora. Yes, just to complement on ALD, indeed, very strong record results for ALD, with 70% decrease in revenues. Of course, part of it is driven by exceptional environment in terms of used car sales with shortage of used cars and also the semiconductor issue, which delays deliveries. So we had, as you saw, EUR 740 per car result. The outlook remains positive for the year, which allowed us to provide a more precise guidance on used car sales of EUR 600 to EUR 900 per car. On top of the excellent results and as said by Frédéric, ALD is also moving towards the strategic objectives of the MOVE 2025, with, as you probably saw, some targeted acquisitions with [ Steeper ], which is a start-up specialized in Mobility-as-a Service. So we have also announced the partnership and the acquisition of [indiscernible] Leasing, which adds 20,000 cars. And the partnerships such as an important one with Smart, which is a 100% electric vehicle company also, with a trend of further electrification of our fleet, which is a significant trend in the market. So overall, good progress, both in terms of revenues, profitability and the strategic road map. Maybe shifting totally to your first question on cost of risk. But as you saw, we have a very low cost of risk, 11 basis points. It's 16 basis points for the first half, which you see that -- [ William ] commented on the revised guidance of 20 to 25 basis points. We have maintained almost stable our S1, S2 provisions, which are of EUR 3.6 billion. The outlook is that we consider that there could be an increase of cost of risk in Stage 3. It's extremely low across the board, as said by William already. But we could see some pickup, and we want to remain prudent in our scenario, especially with the COVID situation maybe being prolonged. Having said that, our H2 outlook remains positive with the development of the situation, the strength of our portfolio and the quality of our origination and our prudent provisioning policy.

And it's fair to say, I think this guidance does not include significant write-backs on the provisions in the second half. So effectively, it will be done more in the 2022.

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

Two questions. First, I think this morning, I read on Bloomberg today I think that you had given an outlook which was probably a little bit less sanguine for 2022. So I don't know if that was a mistake or if you want to clarify on the back of what you said. The second question is on the stress test by the ECB on Friday. When I look at your performance, it's really in line with the European average, except in one area, which is the cumulative pre-provision profitability, which is materially weaker. Could we have a little bit of a view if you analyzed it about what went wrong there versus the rest?

Jacques-Henri, what do you mean exactly on your second question possibly?

I mean -- yes, if you look at the stress test of the bank, okay, yes.

Sorry, sorry. I missed that. Okay, okay. Well, of course -- well, I will answer your question. It's really on the economic outlook that I was commenting, okay? Our economists have always been, to a certain extent and since the beginning of this year, a little bit more positive on 2021 than most institutions and including in the European region. So for example, they had forecasted 6% pickup of the French economy in 2021. And on the other hand, they have also always been more conservative for 2022 than, again, the European Commission, the ECB, saying that at the end of the day, also, it's the sum of the 2 years, which was the most meaningful, if you wish to assess their overall forecast. And it's fair to say, we tend to consider that there might be more, if you wish, there is perhaps a question mark on the consumer spending, for example, whether or not it will pick up structurally. Of course, questions on inflation and monetary policies. Some questions also in the supply chain, et cetera, et cetera. So that's what I was referring to. It's not related to Société Générale perspective, but it's the economy in general. Now perhaps, Diony, on the stress test, I think it's worth explaining on these impacts.

Yes. Thank you for your question. So indeed, as you said, the stress test was quite severe and impacted all banks, but it has also shown the resilience to shocks of European banks. As far as we are concerned, we saw an impact of 700 -- 570 basis points. And you said we are a little bit above European average, below average for French bank. When we look at what really makes the difference, so one related to scenario, scenario in France is quite severe. It's business mix, and it's methodology. The business mix is related to the relative part of our market activities, which under the EBA stress test go through quite significant shocks. We have in mind the minus 45% to minus 55% on equity with no possibility of hedging or management actions. There is also the methodology on market risk, which contains caps and floors. So the cap has impacted the projected revenues given that, in 2020, we had suffered from the market losses and the COVID crisis. And the floors impact the level of exposure of our [ joint scheme ] occurred in the end of the year and the methodology [ caused us to ] take an average. Now on top of that, some banks have benefited from one-offs, which for some were quite significant, which was not the case for us. So all in all, we did more impact given our exposure to market activities and the specific situation of 2020 where our results were lower than our normal trend in terms of market activity.

Next question is from Madam Delphine Lee from JPMorgan.

So my first question would be on the French Retail, that now you're guiding to revenues improving. I was more interested, in particular, on net interest income, what that implied. If you don't mind elaborating a little bit what you're expecting on volumes, margins. Are you concerned that volumes could start normalizing? Or is there any pressure -- significant pressure still coming from the deposit margins in particular? And then my second question is on the capital return. Just wondering if in your 50% payout ratio for this year, I mean, you talk about the EUR 1.20 of cash dividends. And I'm just wondering if you would consider including some buybacks, which you have done for 2020, but again, for '21, if there's any component of buybacks.

Delphine, I will leave the floor immediately to Sebastien to comment and answer your question about French Retail. Yes, let me just remind you that our policy on dividend is to say we will distribute all-in 50% of our underlying net profit. And within this 50%, we consider that up to 1/5 could be dedicated to potential share buyback program, the rest being, of course, a pure cash dividend. So yes, we could, and we will look at this at year-end, consider some share buybacks within December. Sebastien?

Yes. Delphine, so coming back on net interest margin. It's up versus Q2 2020 versus Q1 2021. And answering your question, so we are using different levers to support the net interest margin, the first one being to convert side deposits into financial products. And obviously, second lever is to be very active to support credit production, which has improved, which improved in Q2 and especially for mid- and long-term credit to [ capitalize ] and the home loan production to individual customers. As you said, there is still pressure on the deposit margin coming from the increase of deposits and also the context of low-wage environment. So for sure, this context in terms of wage will last in the coming months, even years. But we are confident that, using the different levers I have mentioned, we are well positioned to support the NIM and mitigate the impact of the low-rate environment and certainly increase our deposits. And especially regarding deposits, we can imagine that increased upside deposits in the future will be lower than the one we have had over the last quarters.

I mean, we have also, Delphine, an important point I forgot to mention. Obviously, we -- I haven't mentioned the fact that we haven't booked any second modification for TLTRO in Q2. So we have positive growth of the gross margin compared to last year compared to Q1 without any second modification impact.

How much would that be in coming quarters?

We don't disclose that number. But as you know, we tend to be -- I mean, we obviously refer to TLTRO III, for which we haven't [ tackled ] anything. As Sebastien said, you know that we tend to be a little more conservative than the average market practice because we account it over the life of the instrument, i.e., 3 years. So if you do your calculation, you know that we have EUR 72 billion of amounts, you can multiply that modification and span it across 3 years. That's easy.

So you see, Delphine, I'm sure that you're good enough in math to make the calculation. It's relatively significant, and it will be just -- keep in mind, spread according to the full duration of the TLTRO or the so-called TLTRO. So that would help on top of everything that Sebastien mentioned.

Next question is from Mr. Jean-Francois Neuez from Goldman Sachs.

I just wanted to pick up on the questions that have been asked before. Very quickly, on the net interest income in France then, would you say that the second quarter, in short, is a level which we can consider as a trough in absolute terms? Because that would be a significant change compared to the trend of the past many years for this particular item. Secondly, I read this morning a headline from [indiscernible] who was saying that the environment for equity seems to be remaining good, supportive, as it said. And I felt in the first quarter that his comments after the very strong quarter that was -- that took place were more towards leading us to the guidance of more conservatism, maybe than that headline would suggest. I just wanted to understand if anything has changed or what were the fundamental drivers because, obviously, it's a great development. And if I may -- you don't have to answer, but if I may sneak another one on the stress test, do you think that your restructuring of the equities business of last year, which obviously took place after the cutoff date, I guess, of the stress test maybe for the full effect would have changed your outcome?

Yes, I will leave Sebastien to answer again your question on the NIM. I'll leave Sebastien to comments on the equity perspective. Again, just as Diony said, if you had done the same stress test today, 6 months later, it would have been better, in particular, because, again, in the way it's done, you capped the floor -- you cap the revenues at the -- you have to cap the revenues at the 2020 level. And obviously, in terms of capital generation, given the kind of revenues we do today, it would have been effective. So probably, we are losing a few dozens of basis points because of that and the different effects. That's is -- but structurally, I think we are improving the potential future results of the stress test for Société Générale with what we have been doing. Sebastien?

Yes. Jean-Francois, we have on guidance -- on the French Retail revenues as a whole, seeing that we expect positive growth of revenues compared to 2020, which is a slight change compared to what we said last quarter. So we're clearly more optimistic. I will not give a sub-guidance on the different components of the revenues. What I can say on net interest margin is that we will use -- we'll keep using the same levers than the ones I have mentioned, i.e., converting side deposits into financial products and boosting credit production, which are the 2 main levers to support net interest margin in the future.

Sadia?

So hello, thank you for the question. I believe that my comment was referring to the environment, mostly. And clearly, let me walk you through my reasoning. If you compare the current situation versus our conversation 3 months ago, you have a market where you have sustained trends, stable volatility at high -- reasonably high levels, but without any -- the exceptional spikes or exceptional volatility -- of the volatility. So you have a continuation of this good combination of factors driving investment banking activity in equities towards, let's say, a good environment. So that's what I was trying to say. And looking forward, at least to 2021, and I'm talking about the market here, you have trends that will remain because you have unanswered questions about the macroeconomic -- long-term economic outlook and about monetary policy in the context of the inflation theme. And these, I believe, are going to be reasonably positive drivers for the market, right? If I turn to our own performance, and again, commenting on your comments about my comments from last time, we are down 10% because Q1 was exceptional, and I was really expressing the caution versus truly exceptional market conditions. So in Q2, good news, they remained conducive starting in May after -- in April, which was very slow on the back of very low volatility, but picked up again with all the [ impatient theme ] reappearing, so to speak, in the conversations on the buy side. And -- but still, it was lower than Q1, right? So I don't know. I hope I'm being clear in the sense that I believe that the equities market conditions will remain reasonably good, not comparable to Q1, but reasonably good. And our own ability to be relevant in these markets, it should be unchanged.

Next question is from Madam Giulia Aurora Miotto from Morgan Stanley.

So my first question -- actually, more than on the quarter is really more forward-looking. It's about the integration between SocGen and Credit du Nord. So how is that project progressing? Can you give us an update of the milestone achieved so far? I don't know if maybe you're going faster or slower than you had originally anticipated. And then in terms of loan growth quarter-to-date, so the most recent thing that you're seeing on the ground, which areas are showing the best trends and which ones are still quite subdued? So that will be my question around French Retail. And then secondly, International Retailing. You mentioned that, of course, the Czech Republic and Russia rate cycle are positive. Could you quantify that? If we take the current market forward, what would that mean for SocGen's revenues?

Hello, Giulia, I will leave the floor to Sebastien for the French Retail and Philippe Aymerich for the International Retail. Sebastien first.

Yes. Giulia, for your first question regarding the merger between Société Générale and Credit du Nord, I mean, everything goes as planned with the merger, which will take place H1 2023. IT merger, H1. Legal merger, January 2023, with this difference between legal merger, which would be in advance of the IT merger. We will come back before year-end on October with a detailed presentation of the project, including the different impacts and including social impact of the merger. So we will give more details in the coming months in the project. But again, everything goes on plan. And we are working hard to stick to the timing I have mentioned. Regarding loans and credit production, Q2, we had a rebound in credit for corporates, mid- and long-term credit corporates, excluding state-granted loans -- excluding state-guaranteed loans, and also a rebound in home loan for customers. We won also in last June in consumer credit, which is good. The prediction for -- of short-term facilities and short-term credit for corporates remains more under pressure in the context of excess liquidity corporate needs in terms of short-term credit and facilities is obviously less important.

Thank you. Philippe, on the International Retail.

Yes. Thank you for the questions. So I start with KB. So that's true that the net interest margin of KB has been under pressure due to rates reduction, but at a slower pace during the second quarter and has been partially offset by a good level of production, notably on mortgages. And it has also been offset by a strong momentum regarding fees, financial fees and nonfinancial fees. So the -- we project 3 hikes of each 25 basis points, one of them has already taken place. As you will see, KB will -- is projecting flat revenues, more or less, for the year. Simultaneously, there is a very tight control regarding cost base. Regarding the other entities of international banking, BRD has also been impacted on this rate reduction, but clearly offset very significantly by a very, very strong momentum on production and on deposit, also on fees. And the other entities of international retail, notably in Africa, has not been impacted by these interest rate moves. And you -- as it was mentioned by William, the revenue momentum is very robust in these entities.

Next question is from Mr. Matthew Clark from Mediobanca.

So a couple more questions on French Retail Banking revenues, please. Firstly, on the TLTRO, are you still confident that you will meet the second lending hurdle to get the second, I guess, modification is how you described it, even if you haven't met the, I guess, threshold from an accounting perspective to book it already, as you described in the footnotes of your financial report? And then second question, was there any material benefit from the resetting of the state-guaranteed loans this quarter after the 12-month time period lapsed? Was that part of the reason we saw an improvement in NII and margin in second quarter versus first quarter?

Matthew. I will leave the floor to Sebastien. Let me just give one precision. The TLTRO effect is not just for French Retail, it concerns other activities. And effectively, the objectives include other loan production that [ is just principal ]. France is contributing to that. Now perhaps further explanation, Sebastien, on a few questions.

There now, regarding the TLTRO, things are going in the right direction. So as I said, we have an increase of net interest margin between Q2 and 2021 and then Q2 2020, without any impact or effect to the second modification. But I mean, things again are going in the right direction at a group level. Coming back to your second question.

So the benefit of guaranteed book, there's not really any benefits in the second quarter?

No, there is not such an important impact of the state-guaranteed loans. Keep in mind that the pricing of the state-guaranteed loans, it's at cost. So that's not the kind of product where there is a high margin.

How do you define the cost? How do you measure that?

We were able to distinguish all the cost of distribution and that cost [ is the price ] of liquidity.

So it's a little bit liquidity, cost of risk and cost of distribution.

I think it will be -- it will be better to have this midterm loan in the very short term at 0, but it's relatively marginal. And again, the people have just made the transition towards the decision of amortization. So it's something, again, relatively limited. Because again, the overall banking system committed to, as you know, do that without excess margins, but we have been able to price the cost of putting in place these loans reasonably.

Next question is from Madam Azzurra Guelfi from Citi.

From my side. I have 2 questions. One is on the CIB and one is on capital return. You have undergone a revision of your CIB business. And we have seen the revenue performing well also on the back of constructing market backdrop. But my question is more around the customer reaction to your restructuring. Has it been more constructive than what you're expecting? How have the customer reacted to the changes that you have done? And have you seen any cost assets impacting your CIB business? The second one is on the capital return, and it's on the medium term, it's not just now. Shall we expect that the higher capital return from Société Générale will come just because the profitability improves? Or given the strength of your capital position and the derisking of your business, there could be something more down the line?

Azzurra, I will answer your question on CIB. I think we really consider that, given the fact that we have to fuel the development of our businesses and we have growth potential in our businesses, factoring also the different regulatory impacts and then to start with Basel IV that we consider should be implemented probably now more 2024, let's be realistic, than 2023 in our previous computation. But again, 50% of net underlying profit is the right distribution level. It provides an attractive yield to our investors. It can be again spread -- split between, as I've said, our cash dividend and, of course, share buyback. We really believe it's a balanced policy. And of course, and just reflected by the first half versus last year, it means, effectively, thanks to the profitability improvement, more for our shareholders. But I think it's really the right band given our business model. If we had -- if we were just a retail bank in Eurozone, I might have a different answer. But we have, in our view, opportunities to grow different business models, which request, of course, some part of our net profit.

Can I follow up just quickly on the regulatory headwinds? Have they been confirmed versus what they were last quarter? Have there been any changes apart from the one that you booked?