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 third quarter 2021 results. Gentlemen, please go ahead.

Hello, everyone. Good morning. Thanks for attending this call. I know it's a very busy day for you with many communications. So we'll try to be as efficient as possible. Before moving immediately to the results, let me just, of course, pay a tribute to William Kadouch, our CFO, who, as you know, is going to leave the group to join Eurazeo. I would like really to thank William for his contribution during his 14-year tenure in Société Générale. And in particular, in the last few years as Deputy Manager in charge of Finance. And of course, I wish him all the best in his next position. He will ensure a smooth transition with Gérard who will take over. Some of you might look there. I have been working with her for many years, and she is going to take over, I think, with exceptional qualities to succeed in this important position. So that will be a smooth transition and you can be guaranteed of continuity from that perspective. I will very shortly introduce those figures and then turn to William, who will answer a little bit more in the detail. Well, clearly, a very strong quarter across the board. Strong increase of revenues compared with the third quarter of 2020, where we had already a rebound of our activities compared with the lockdowns in the first half of 2020. I could mention exceptional performances in fleet management as well as in financials and advisory, very robust figures for capital markets and international retail and the retail activities in France also, which are growing, as you can see, in the French economy, which is doing well. So we'll enter more into the detail. Let me just underline that we maintain a strong discipline on the cost, and we have a strong increase of gross operating income by 1/3. And the cost of risk remains very low while we maintain a very prudent provisioning, as you will see. We keep our buffers going forward. So it leads to a EUR 1.4 billion underlying net profit for the quarter, EUR 1.6 billion published, and a double-digit return on tangible equity. Regarding the capital, strong capital, strong generation of capital. We have 13.4% core Tier 1. That includes the impact of the share buyback program that we are launching today. We had the authorization at the end of September. But you can understand that we wanted to comply with the market rules having already information on our results in particular. And so we are launching that today, and we want to complete that at year-end. And knowing that we have also provisioned for 2021, EUR 2.03 per share for distribution. I mean, to pay the dividend and a potential share buyback. It corresponds to 50% of our underlying net profit. And I would say beyond the results of this quarter and following a very successful first half. The very positive this element is, I think, the successful implementation of our strategy. It's true for the French network merger. We have presented just 2 weeks ago, the detailed business model for our new bank. We are successfully obviously implementing our GBI strategy presented in May. And beyond, as you know, we are also taking advantage of differentiating assets -- differentiating assets [indiscernible] ALD, we communicated 2 days ago that there are ongoing discussions with lease plans to potentially create the -- an indisputable leader in mobility services and, for example, KB in a very, very strong European retail market. That's what I wanted to say, and I will in terms really turn the floor to William. I will -- for the sake of time, not comment the straight on Slide 4, it's the COP26. I would be happy to answer your question on ESG. What we did this quarter is highlight all the ratings by many rating agencies, which acknowledge the leadership of Société Générale in this field, joining the very selective AAA MSCI category, in particular, but you see also Vigeo, we're in the top 1% bank. It's something we take very seriously. It will be enshrining all the strategies of our businesses for 2020 to 2025. And again, I will be able and happy to answer your questions on this topic. But again, for the sake of time, I will move immediately to figures. William?

Thank you very much, Frédéric. Thanks for your comment. I take the opportunity to say how happy have been over these14 years and also working in the past year few of with my colleagues in the general management. They are fine and great team. I also would like to thank you all for the constructive dialogue that we had over the years. And some of you would remember that you may started off with some tricky questions. Now coming to the results, Page 6. You have the -- what underpins the good net income that Frédéric just commented upon. Just to remind everyone the figures, reported net income stands at EUR 1.6 billion, up 67% relative to Q3 '20. Adjusted for IFRIC and for EUR 97 million CTA charge transformation provision and for the capital gain of EUR 185 million pretax, EUR 132 million post tax linked to the sale of credit in our headquarter. The underlying net income stands at EUR 1.4 billion, roughly, which translates into a return on tangible equity of 10.9%. So now fundamentally, the first big driver of this performance, as it was the case in the past quarters is the increase in the gross operating income. You see that on the left-hand side of the slide, plus 33% year-on-year increase in gross operating income. And compared to the same period of 2019, i.e., pre-crisis, it's a 44%. This reflects the rebound in revenues, but it's reflect also very much the effort on the cost side. I'll come back to that in a minute. You see positive jaws for the quarter. And the cost income ratio down at 64%, which is not only down relative to 2020, but also down relative to '19 and actually also quarter '18. So a fundamental work on the breakeven point and operating leverage of the company, which you see illustrated in Page 7, with the cost evolution and the comparison relative to last year. The costs are up 3.3% compared to last year in nominal terms. And if you look at the details, what you would find is very simply put that the whole increase is explained by provision for variable compensation costs, including bonuses, but of course the profit sharing. And taxes, I mean, since we've already had the opportunity to discuss with you such as the increase of the SRF charge under the IFRIC 21 accounting rules here. And otherwise, you see this is under the other cost that the fundamental fixed cost base of the company continues to decrease, which is obviously the result of the plans we've put in place in the various areas that you know, French Retail, CIB, International Retail, where we have strong cost discipline and central functions. You see positive jaws, strong positive jaws for the first 9 months. And again, for the first 9 months, a decrease in cost income compared to the same period of last year. The second element that explains the increase in the net income, as you would expect, is the cost of risk. Cost of risk remained very low across all businesses. It's -- in fact, that an historical low, 15 basis points for the quarter, 16 basis points for the first 9 months. And this is entirely explained by a low Stage 3 provision. You see the nonperforming loan ratio keeping -- staying at a low level at 3.1% combined with a very decent coverage rate at 62%. And you see the illustration of what I've just said in terms of the dynamics behind the cost of risk in the next page, where you see, as we had commented in the previous quarters, Q1, Q2, very low level of Stage 3 and still a very low level of write-backs, effectively, only EUR 70 million for the quarter, which means that we continue to keep a very high level of Stage 1, Stage 2, inventory of provisions close to EUR 3.5 billion, which is a 2.7x the 2019 as S3 provisions to give you an indication of what it translates into. Capital. As Frédéric said, capital continues to be strong. It's fairly stable, 13.4% end of the first half, 13.4% end of September, despite the fact that we account fully in one go in Q3, the prudential impact of the share buyback, which will be executed in the next week, EUR 470 million, equivalent to a consumption of 13 basis points of core Tier 1. So obviously, how do we get to that number? First and foremost, because of the organic capital generation, you see that the 9 months 2021 organic capital generation stands at 61 basis points. To give you some point of reference, pre-crisis, let's say between '15 and '18, we had an organic capital generation in the area of 25 basis points a year. We increased that in 2019, and then we come back after the crisis of '20 with an improved organic capital generation capacity because of what we discussed before, i.e., the lowering of the breakeven point. Just on liquidity, I wanted to mention that the liquidity remains ample. We have -- you see that in the group's supplement EUR 227 billion of liquidity. But one word, going forward, pertaining to Basel IV. As you know, the European Commission has submitted its draft proposal for the implementation of the Basal's agreement, so-called Basel III completion, contains 2 very important elements for us as well as for the industry. The first one is the delay in timing. So we will have 1-year in addition to what we had initially forecasted to create organic capital generation. And very importantly, what we see in the draft legislation is very consistent with what we have told you when we had done some computation. So when we had told you, it's approximately an impact that we would expect in the area of 100, 115 basis points in terms of capital consumption. What we see comfort us that it is the right ballpark. Actually, it's probably a bit better from what we see than what we had forecasted. So let's say 100, 110 max. Coming to the businesses. I will stay long on Page 13. It's been largely commented already by Sebastien a few weeks ago as well as by Frédéric. Just to remember that we have announced during the quarter that we are -- we have a new milestone on the merger of Crédit du Nord and Société Générale. And we remember you, we remind you of all the milestones going forward. And we reiterate the commitment on the cost decrease with some details, which we were able to communicate a few weeks ago. The dynamic on the French network. And here, I'm talking about Société Générale and Crédit du Nord, talk later about Boursorama is improving across the board. Although, we continue to see that we are in the recovery mode for loans. Loan production is picking up, both home loans and the production of mid long-term corporate loans, consumer loans, it's improving but not yet but at the level of what we had seen pre-crisis. So in total, you see loan outstanding down relative to last year, 9% up relative to same period of '19. But the important point I wanted to stress, and we will discuss that with Sebastien we have questions. If you have questions, it's obviously the dynamic is improving. Deposit outstanding continued to grow dynamically. And you know that it translates for us, unfortunately, mostly into a negative impact on the margin on deposits. Yet what you see on the right-hand side is what you've seen in the past quarters, and this is another quarter that reflects that. We are able to convert on balance sheet savings into non-balance sheet savings, be it life insurance, particularly unit-link or private banking net inflows. At the same time, we continue to progress in bank insurance with Protection Prima and P&C premier up 3%. Boursorama, another great quarter in terms of client acquisition ahead of plan to put it simply. And that's combined with a strong capacity to monetize, you see that the loan outstanding and deposit outstanding are close to 30%. So this is a real banking model as we had said. Just to give you, as usual, the indication of where we stand in terms of adjusted profitability for Boursorama, i.e., adjusted from the acquisition cost. It's roughly 15% of the first 9 months, consistent with what we had indicated to you a while ago now. And as a total, for French Retail, you see revenue increasing close to 6%, a return of 15%, 16% actually Boursorama a contribution to group net income, EUR 451 million. International Retail Banking, you see here a pickup in production as well, loan outstanding, deposit outstanding, favorably position in each and every geography we operate. Deposit outstanding here, obviously, is beneficial to us. We operate in positive rate environment. Let me highlight that the speed at which rates are increasing in countries such as the Czech Republic is not yet reflected totally in the numbers. It will yield in the next quarter. So all these deposits we're collecting, we yield combined with the rate hikes in the next quarters, that's a positive. But overall, you see for International Retail. Good revenue dynamics and 17% return combined with the contribution of EUR 261 million financial services have another variance quarter. You see, as a whole, the profitability for the quarter at nearly 28%. Revenues are up 30%, gross operating income up 53%, contribution to group net income 323%. So this is a very broad-based. Insurance revenues are up 10%. Equipment Finance revenues are up 12%. Of course, ALD has a very high double-digit revenue increase. This is linked to its contracted gross margin for 12%, i.e., the core a nonvolatile part of the business, a structural part of the business, but you also have a sustained demand for used car with a record high level in Q3 and for the first 9 months in excess of EUR 1,126 per unit achieved in the first 9 months. Overall, for IBFS, you see a high return at 22% and the contribution to net income of EUR 584 million. Let me point you particularly to the operating leverage in this division because we operate in areas where you have in some countries already some inflation, and you still see operating expenses well lasted at 2.3%. Turning to CIB. You see that Global Markets & Investor Services have another good quarter, plus 8.4%. And this is a bit of a tale of 2 stories as you've seen with some peers that we benefited from our mix overall. Equities very strong, up to 53%. FIC, obviously softer given the less conducive market positions and also some elements linked to our own mix, which we -- I'm sure we will have the opportunity to comment with the Premia. But as you can see, a very strong quarter at EUR 1.2 billion for global market revenues, which is above what we had indicated is the historical average. Very strong quarter for Financing and Advisory as well as Asset and Wealth Management, looking with Financing and Advisory across the Board being IBD, i.e., acquisition finance, M&A and LBO where we have an increase in revenues of 42%. Asset-backed product plus EUR 73 million, asset finance 48%; and transaction banking 23%, to give you a few casing points. You can see that we have a very strong quarter for the first 9 months, you see revenues up 13%. Asset & Wealth Management is also strongly up, both private banking. I already mentioned the positive net inflows in France, but we also have positive net inflows in other jurisdictions, actually, in each and every country, we operate, and we saw we had a very good run. So in a nutshell, for CIB, you see a strong contribution of EUR 563 million to the net income, underlying return at 12% and underlying return for the first 9 months at 14%. Corporate Center, just to finish rapidly, I just wanted to highlight that we have in the Corporate Center 2 one-offs, which -- 1 negative, 1 positive. Let me remember you that we have decided to simplify the communication for the one-off cut into the CTA, which is EUR 97 million transformation charge all accounted for in the Corporate Center, but they may relate to business transformation. And we have also EUR 185 million capital gain on real estate disposal at the headquarters of Crédit du Nord have been sold. The equivalent amount of post-tax is EUR 132 million. Importantly, these 2 items are obviously adjusted from the underlying on the basis of which we calculate the payout that Frédéric mentioned before. And I'll stop there and leave the floor to Frédéric.

Thank you very much. William, just a few words of conclusion. It is clear, 2021 will be a very good year for Société Générale and a year of strong achievements. I would say, again, beyond the figures, the results, I also take comfort of again, the successful implementation of all these strategic projects, which will shape the bank going forward and will help us to address the structural challenges which remain on the European banking sector as we all know. So we are already embarking in the preparation of our 2022-2025 strategic road map. As I've said previously, with 2 main dimensions, which will be taken into account by all businesses, the digital transformation to pursue the capacity to take advantage of the new technologies. As you know, as an outcome of the crisis, the usage of new technologies by clients is further changing and in across the world. And of course, ESG, which is a fundamental revolution. We are -- we have started this journey more than 20 years ago, and we have the advantage of exceptional expertise in that domain. But of course, we have to further transform, as you know, and we have the ambition to meet short-term ambitious commitment. And beyond, of course, implement the more specific activity initiatives, which relates to businesses. As I said, the merger of the Crédit du Nord networks, which is going on very smoothly. And -- but which is a big project with a lot of, again, ambition. The growth of Boursorama, on the other hand, to complement a unique offering in the French market. The development of all our international retail and financial services franchise. With this potential acquisition, which I think would be a very positive move for the group as a whole. And eventually, a very successful implementation of the GBIS strategy in a market where, again, market conditions might not be as favorable as it has been in 2021, but where we see opportunities to capture market share and where we have unique leadership expertise. So as you see, mainly work, we will pursue the same discipline in terms of cost and risk. But I look at this period, considering that I've not seen as many opportunities as I see today, in the past 10 years, I would say, following this crisis. So the most agile bank will be the winner at the end of the day, and I think we are certainly moving forward on our side perspectively and in the most way as possible. That's what we wanted to say. And now we are open to your questions. Again, let's try to stick to this nice discipline for everyone, 2 questions, if possible, per person at least to start with. The floor is yours.

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

So my first question would be on revenues and the outlook. Clearly, this year, you've had a great bounce back with 10% increase in revenues from a low base. I'm just wondering sort of how we should think about '22? I think Frédéric, you made some comments, I think, recently about a more moderate growth going forward. So if you could give us a bit more color around the moving parts around how you're thinking about growth for '22? And then my second question is on Basel IV. Just to clarify your comment that the impact could be a little bit better. Is it possible to get the EUR 1 billion number? I think I recall it used to be EUR 39 billion. How much of that is [indiscernible] and where is the improvement coming from? If you just give us a bit more of the split of the impact that would be quite helpful. And just a real like when is the Investor Day next year, if -- you tell me ask.

Yes. Delphine, I will let William answer your question on Basel IV. Regarding the Investor Day, I think you can understand that we are -- I would like to have clarity, for example, on the discussion that we have with ALD, for example. So you see that it's still a little bit complex for us to determine exactly the date. It will be in the first half. We will try to clarify that as quickly as possible. A short comment on your first question, and we will not give guidance premature for 2022. And I would like to highlight that I was commenting on the economic growth and not revenues growth in a recent article. First of all, let me say, we remain constructive for next year on the economy, the world economy even if we are a little bit below most assumptions. We have did grow for China of 4.9%, considering that the impact of this -- the deleveraging can play a significant role. So 4.9%, it's relatively low for China. We consider that there will be still fractions in the supply chain. So we are positive with figures which remain relatively robust, but nevertheless, below most of the other public forecast of different institutions. On that basis, we need to look at each activity. They have their own dynamic. We have commented a little bit. A lot will -- we will see how the interest rate development take place. It's still a little bit unclear. We are going to benefit further, as we've said, in International Retail from Heights, which has taken place. We are hardly seeing the benefit so far. We are positive on the financial services. There is a dynamic there. We will see on the car market, whether there is still, again, this exceptional situation, it is likely that it might stay at least for 2022. And for GBIS, we will sent more into detail. We are still sticking to our figures that we said in mid-cycle. So we factor the very positive market environment. But on the other hand, on the financial activities. As you know, we are also very clear, and we know that we have a capacity to take advantage of the leadership expertise, in particular, in the investment, in infrastructure finance, in the energy transition, et cetera. So again, premature to give you a comment, detailed comments. I think we are doing a fundamental job. And we are reaping the fruits of a multiyear effort, which is also true on the revenues, and we want, of course, to post to that. A word on Boursorama, William?

Sure. We have told you effectively, Delphine, hello, sorry, EUR 39 billion, as you say, increase in RWA by 2024 on or again, will be '25. Based on our reading of the paper, it seems that there are a little more element that are fronted by TRIM, so probably more in the EUR 34 billion, EUR 35 billion category that will be clarified by clear demand when the trajectory would be presented to you in the first half of 2022. But let's call it, we are between 100 and 150 basis points between 9% and 10% increase in RWA. So that the type of ballpark. On FRTB, we didn't split the impact, but we have provided a lot of detail ahead of many peers already that include FRTB. An important point on FRTB because I won't disclose again all the details. At this stage is the fact that the commission has been quite vocal in saying that they will monitor very strongly the way of the jurisdictions, namely the U.S. and the U.K. intends to implement or not FRTB. So it means that potentially, that one could be revised. So I think if there is a surprise on FRTB, we would expect it to be possibly a surprise on the upside rather than the contrary.

The next question comes from Giulia Aurora Miotto, Morgan Stanley.

So my first question is on LeasePlan and ALD. I guess, strategically, the transaction could be interesting, but the worry from investors is probably on capital usage. So -- in the corse of January. Is there any comment that you can make at this stage in terms of how much capital could potentially be deployed towards this transaction or how you can think about structuring it? So that's my first question. And then secondly, on costs. So I understand variable costs increasing given the revenue performance. But what are you seeing in terms of underlying cost inflation in your exposure in Central Eastern Europe, but also in France? So do you expect that to probably impact your 2022 cost line?

Giulia, I will leave Philippe and Sebastien to answer your question on the cost in the retail -- different retail activities. What I can tell you, you should not be worried on the capital. I cannot give you any figure. But the way we think about this transaction, which makes a lot of strategic sense and should be very positive in our view is again to, first of all, maintain the strict capital allocation that we have in mind, a 50% payout that will not change. And so it's part of the 50% we can dedicate to the growth of our activities. And I think you can imagine structures, which allow us to do that. So again, you should not be worried on the capital impact of this transaction. That's what I can say. It takes time precisely because we want to have a very strict discipline. We publish or potentially the structure among different things that we do due diligence, et cetera. So that's why it takes time, but it won't be worried on capital. Perhaps Sebastien and Philippe briefly what you can say at least on the call dynamic so far?

Maybe a couple of comments first on the evolution of the cost base as far French Retail is concerned. So we obviously have positive jaws on this activity this quarter again and an increase in OpEx, which is explained by first, investment in our growth drivers, such as Boursorama, our private banking activities. It's explained also by adjustment on profit sharing and incentive plan as a direct consequence of the group reserves improvement with as a whole, an increase of our net contribution to the group results. Regarding the recurring cost base, so to speak, i.e., excluding the specific cost, but the specific increase -- increases, so the recurring cost base is increasing by 1.6% versus Q3 2020, which is quite low, considering the basis effect of 2020. And keep in mind also that in the long term, our operating expenses have decreased minus 1.8% compared to 2019, whereas the NBI is above 2019. So that's the global picture for the French Retail cost base.

Philippe, can you elaborate on your slide on the international retail, please?

Yes. Good morning to everybody. So basically, I'm going to make the same comment on the Sebastien. Yes, there could be some impact on the inflation in some countries such as Russia, for example. But keep in mind that in all these entities on all these banks, we have very significant initiatives in progress. Not only to improve the business model and to digitalize the client journeys under processes, but also to reduce the cost base. We will continue with this project. Maybe in some cases, we will -- we have problem. I think that all these banks have demonstrated during the last quarter and years that they are able to reduce the cost to serve.

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

I just wanted to ask you a first question on the results themselves and the provision for dividend with EUR 2.03. I just wanted to understand, let's say, in a scenario whereby some of the nice ones that have happened this year, such as the really low cost of risk, which is good to see or some of -- for example, the revenues in the Corporate Center this quarter or some of the secondhand car market or some of the strength in equities did not happen the same way next year. And by the way, that might be offset by growth elsewhere, but assuming all else equal, if this did not reoccur, how would you think about the dividend in absolute terms? In the past, I remember before COVID that was -- but there was some sort of flow or at least a way to manage that you had introduced. And I'm only asking because you referred to your 50% payout ratio at the right level, I think, this morning in the headlines. And my second question was just simply on the equities business. I just wanted to ask if there was any way that we could quantify if that's right, whether there is any mark-to-market gains that came from back from maybe some of the inventory of last year? And what is the kind of the right commercial revenue level if that's right?

I will leave Severin answer your second question. On the first one, first of all, as you've said, the idea anyway is if there are certain elements which might not be sustainable in the long term, as you've mentioned, the car sales or exceptionally to market conditions in certain areas. The whole purpose that we have in mind is precisely. Thanks to all the hard work in the certain strategic projects to compensate to ensure a sustainable profitability and grow our activity. So what you need also to factor and it's not necessary for 2022, but the benefit of the merger of our 2 networks. Boursorama, which will be -- which is growing more quickly than expected and which will come to profitability when we will reach the maturity. The benefit of all the hard work that we pursue in International Retail and Financial Services. The different saving plans that we are currently further in financing, et cetera, et cetera. So I think the purpose is really there to compensate for favorable, which might not again be there in the mid-cycle. Secondly, we will not go back to a floor. We prefer to stick to 50%, where there is flexibility anyway is also the split between dividend and share buyback. As you know, we are here very flexible because we consider 2 levers are very beneficial for investors, so premature to say. We will, again, consider the 50% is really there to stay. No reason to change. I want to again come back to the fact that we can finance acquisition retard to changes. So no worry on capital, and we will look at each year, the best fit between the 2. Severin?

Thanks for the question. If the question is really what makes the performance of equities between commercial activity, pure position gains and what's the share of this and whether there are some unique opportunities in terms of the hedging conditions that we took advantage of. So the answer is, the hedging conditions are favorable and have been favorable throughout the year, and we've been talking about this in past quarters. It's still the case. But it's not a material share of the total revenues of our equities business. So what's driving the performance is very high commercial activity in top-ish market, which has volatility, but which is stable and where there have been no disruption or even minor dislocations throughout the year. And so from that perspective, I've already commented this in the past. It goes to perfect market conditions for this business. And it was still the case in Q3. And so this is what's driving the performance, the fact that our broad, deep and now more diversified business, he is taking advantage of its leadership position across its subsegments in the market, which is favorable. So there is a component which is linked to optimal hedging conditions, but it is small.

The next question comes from Omar Fall from Barclays.

Just on French Retail loan growth. Mortgages is still quite good, but are you seeing signs of a floor on the SME side potentially already in Q4? Or do you think we have to wait for next year for that? And then on that same basis, could you just reupdate us on the NII sensitivity at the group, which is mainly driven by French Retail. So last quarter, you told us plus 10 bps is plus EUR 60 million year 1, and that's what's in your annual report. Does that still stand? And then second part of the question is just going back to ALD, just to confirm why spend any capital at SG level, if you will be spending capital at SG level of buying these kinds of assets significantly above their book value when you could just buy your own shares at half of your book value?

Omar, I will leave Sebastien to comment on the SME loan development. William he can remind you the sensitivity. On your question on the ALD. Again, I say, first of all, we have an attractive dividend policy. And I think ROE is also to think a little bit beyond the strategic dimension of the group in the next 10 years. We have ALD now, what, 6, 7 years ago -- or '17, sorry, 4, 5 years ago. In -- having in mind that there might be, at some point, opportunity to consolidate a fragmented market, which was a fantastic growth market. And if I may, we might, again, it's not certain, but they might see effectively this opportunity to take place and to build a world leader by far. So with, as I said, the capacity to structure the transaction with a relatively small impact on the capital, I think it makes a lot of strategic sense for the shareholders, and it will help going forward to find dividend for the share buybacks. So I think really, there's no doubt that this transaction is, again, it meets our criteria, our discipline criteria would be very, very positive. Sebastien, on the SME?

Yes. Omar, so regarding loans outstanding evolution quarter-after-quarter. So as we said, that's down versus Q3 2020, up versus 2019 with an evolution penalized by short-term activity, but very good credit production for mid-long-term credits to corporate, including SMEs. It's plus 47%, excluding that granted loans, which is a very good, very solid number. Having said that, please keep in mind that we do have a selective approach in terms of credit production. The objective being to protect our margins with, as you can see, a positive impact on our NII and a low-risk approach, again, with a positive impact in terms of cost of risk. Having said that, we do expect a very good level of credit production for corporate and SMEs, mid-long term in the coming months.

We simply put in rounding the numbers for a 10-basis-point increase or decrease in rates -- parallel increase in the core, the short and long term, the impact is roughly EUR 50 million in the first year and roughly EUR 100 million in the second year. So that's the -- of magnitude.

And just as a cheeky follow-up, could you give us specifically any sensitivities for Komercni of these policy changes I guess we could ask?

Yes. That's -- what I'll give you is group platforms as would that include the Czech Republic. As for the Czech Republic itself, I know at the point of reference that people continue use in the Czech Republic is 25 basis points. For 25 basis points it's about EUR 15 million equivalent up or down in the first year, which means EUR 6 million for 10 basis points.

The next question comes from Matthew Clark from Mediobanca.

A couple of questions, please. Firstly, on French Retail, could you quantify the components of the net interest income this quarter that came from catch-up of previous unaccrued TLTRO bonus benefit, i.e., that won't be there in coming quarters to help us get a better idea of the run rate? And also as a related question, could you give us a kind of mark-to-market for where your TLTRO eligible loan growth is versus that second hurdle, just given the corporate lending in French Retail Banking has slipped backwards a bit. Presumably, you're still very comfortable that you're going to meet that hurdle if you're booking that benefit already. Then second question is on the Financing & Advisory division where there was quite a big uptick in capital allocation this quarter. Is that something -- is that just a lumpy increase this quarter that will slip back? Do you expect to continue to see the capital allocation grow in that division? Any comment there? And then a final question just on overall capital levels. I think you've guided to 200 to 250 basis point buffer over MDA. Given where you are currently, given the lower Basel IV impact, given that your MDA as a ratio or your SREP requirement as the ratio should be going down in absolute -- in ratio terms. When will you reconsider what to do with what seems to be a fairly healthy surplus over that prospective level? When do you think it's the right time to take a step back and think about whether you have more capital to play with, whether it's capital return or investment?

Matthew. I will let William answer your question on the TLTRO impact. Let me just remind you, it's not by business, it's -- we look at the whole legal entity as SG [indiscernible] so we decided to account for TLTRO because when we look at the different components within a VPM as a whole, we are now comfortable with meeting the target. Second, I will let perhaps Slawomir comment on your question or specific question on the capital allocation. Regarding -- I think we will comment that when we will present for 2022, 2025. We stick to this 200 to 250 basis point buffer. We have to digest fully Basal IV. We have to take into account the way the supervisor will reflect upon its own requirements. So we will have to reflect upon how the sector thinks about it, it's also a relative game, et cetera. So I think it's premature, but at this stage, we stick to the same figures. William, on TLTRO.

Thank you, Frédéric. Just -- as Frédéric said, we have -- the way we account for the unification is taking on the one hand, Société Générale result, for which we have EUR 61 billion outstanding. And on the other hand, what we refer here in terms of the catch-up is Société Générale or a VPM in our Language. And the math are very simple. You have roughly 60 -- roughly 50 of modification. And so that translate into around a number of about 300 that we span across the 2 and something here in terms of duration. We -- the catch-up for that modification is EUR 120 million in the quarter, of which you can assume that 60% goes to retail, French Retail. So that's fundamentally what happened. To your question, which I'm not sure I understood completely, so correct me, if I'm wrong, which is on the -- meeting the criteria. I think the answer is just even means that we are very comfortable that we will meet the criteria at group level. So it can be that in some areas, we are short of -- in terms of our production and in those areas, we over shoot. So overall, for SGEF, we are very comfortable that we will beat the criteria to get citification, which is why in accordance with our statutory accounts, we decided to account for it in Q3 as far as the catch-up is concerned.

Slawomir?

So on the capital allocation to SMA, very simply, the change that you see quarter-on-quarter is not indicative of a run rate. It's indicative of us being strategic and agile in allocating the capital where it serves best for our clients in a given quarter and entry, obviously, the institution as well. So it's not indicative, obviously, of a run rate. What is more indicative of the run rate is what we discussed in May, which is a gradual incremental shift between the Global Markets business and F&A, but something more progressive. And again, the rates you see this quarter is not indicative of that it's really us taking advantage of existing client opportunities in the market.

The next question comes from Kiri Vijayarajah from HSBC.

A couple of related questions on Global Markets, if I may, so I guess, mainly for Slawomir. So firstly, just with all this kind of post-Brexit trade tension we're seeing, I wonder if in recent months, you're seeing increased pressure from European regulators to move more of your trading activities back into the Eurozone away from London? And then secondly, linked to that, how are you finding at the moment, kind of global market staff retention and wage pressures, particularly in Paris because I imagine all the other big U.S. international banks may be moving more of their front office staff to Paris. And presumably kind of you guys are one of the places those kinds of competitors want to hire from, particularly, they've got -- they're also having buoyant revenues at the moment. So what are you seeing in terms of wage pressures, staff retention in global markets, please?

I will ask -- pass Slawomir on the different element.

So on the Brexit question, I mean I personally, but I'm happy to hear your follow-up if you have one. But I personally don't see any uptick in pressure from that standpoint. I mean, the Brexit triggered some structural changes in the allocation of staff throughout the region. But remember that for us, typically, this was more a smaller issue, I guess, because we are headquartered in Continental Europe anyway. So the topic was a easier one for I think all the European -- Continental European banks. But even for the industry, I don't see a major uptick in the pressure that you're referring to. In terms of staff retention, let me put it this way. Is the market in Paris changing and different from what we've experienced in the last decade? Yes, it is. Do we see levels of turnover, which would be beyond standards in most developed active financial centers throughout the world? No, it's actually still much lower than what you would experience in the U.S., for instance, as a matter of rule in the last decade. So it doesn't have us worried at all. And at the end of the day, it's really matching the market as you deliver performance, and this is how we think about this, how the statics about this, and we do have so far, a decent performance, which doesn't make this equation difficult to solve.

The next question comes from Guillaume Tiberghien, Exane BNP Paribas.

The first one relates to capital and LeasePlan. You have about 340 bps excess capital above MDA if I restate for Basel IV and your target of 200 to 250 at all times leaves roughly 100 bps of excess. So would you consider spending as much as 100 bps if you did decide to go for a LeasePlan transaction? And the second question relates to the Corporate Center, pre-provision loss before restructuring charge. Can you remind us what's the budget there? You used to give a guidance, and I'm not too sure I remember the pre-provision loss guidance, ex restructuring charge?

Guillaume, again, I know you try to have figures. But what I can just tell you, I said, I think just a limited impact. I would not qualify 100 basis points a limited impact. But -- only thing was, I can say. After this on the Corporate Center, William?

Guillaume, you're right. We used to give a guidance for gross operating income, underlying gross operating income, as you described it. For the Corporate Center, we did note that in '20 and '21 given the fact that there are some volatile elements, which we expect would impact to Corporate Center, but the guidance plus 400, 500 minus in a normal year. You should expect that in a normal context, as you see the type of things you would get given what we account for in the Corporate center. And then going forward, without giving a guidance, of course, it could improve a bit. As we have said already, we would exit from some remediation on the cost side, and we will benefit from the lower funding cost. That being said, what's happening here is we have strongly in 2021, the reversal of some of the negative volatile elements pertaining to the Corporate Center that we have seen in 2020. We had some things linked to accounting mismatch particularly linked to spread or rates. And so this is what's happening now. We -- for example, this quarter with a high run on the rate side in the Czech Republic or Russia that has a positive impact on the Corporate Center. When all that is stabilized the negative for 2020 reverse pretty much in '21, you should expect that the run rate should go back.

We have no more questions for the moment. [Operator Instructions] We have a new question from Pierre Chedeville from CIC.

I have one question regarding consumer credit. You don't give any information regarding production. And I was curious to know if you observe a rebound there, both in your international consumer credit activities, Germany, Italy mainly, but also in France at from Finance because some of your peers seems to have less violent revenues in this activity, and I was curious to see that it's not the case at SocGen? And I have a question regarding fixed income in Asia. You mentioned that your activities there was not very good due to market conditions. And I was wondering what exactly your activities there? I don't remember, if you could give us a little bit more color regarding FIC activities in Asia for SocGen.

Pierre, I will let the floor to Philippe in my first, and it might be -- his comments might be completed -- complemented by Sebastien on the pure French Retail network activity and then Slawomir. Philippe?

Yes. Regarding consumer finance specialized business, so in France, in Germany and Italy, it's true that there is a slight decrease of production compared to the third quarter of 2020. The most important explanation is that last year, we had a very strong rebound in the third quarter after the lockdown. And also because there is an important part of our business, which is related to car finance. And there are still obviously some headwinds regarding new cars. So yes, the production is slightly down. On the contrary, we have increase of the outstanding's in all the locations. And as you can see in the presentation, the profitability is still quite good for the quarter. And there is also, as everywhere, a very good cost discipline. So an activity which remains quite profitable.

Any comments as is okay. So Slawomir?

Specifically, on fixed income activities in Asia, they are fundamentally linked to both some flow activities and investment solutions on the rate side, mostly, right? I mean this is the focus we have and some other it's in the -- and because of the rates, markets outside of Asia, the demand for the kind of products that we are offering there and the solutions that we're offering there was subdued. And generally speaking, the market conditions in Asia have been poor and leaving people on the sidelines a little bit on the flow side. So basically, the mix of the 2 realities, the specific Asian market conditions and the fact that the rates underlying -- U.S. rates underlying in particular, was not a great client flow this quarter, explains why Asia was a drag. But I would not -- for the entirety of the big performance focus too much on Asia. It's a component. That's why we mentioned it. But again, at the end of the day, you have to think about this as a mix specificity. We do not have commodities. We are geared towards rates more than anything else. We have a much smaller credit business, especially as some of the so-called excited credit business has been put in runoff in the past. And we have all the ABS-related business, so structured credit the way it's referred to, especially in the U.S. is in our company reported under F&A, because we [indiscernible] F&A business. And as William said earlier, this particular business, which is often, again, reported in the fixed income elsewhere has been growing at a 70% rate. So with all these facts, you can get the sense of what's going on and how business mix driven this is. And so if you basically adjust for the business mix. It's a fairly mainstream performance, not something that we should be overly proud of. I think we can always do better, and we are focused on doing better, but it's also more mainstream than it seems when you look at the headline figures.

The next question comes from Azzurra Guelfi from Citi.

Sorry, I have been disconnected a couple of times, so I hope this question has all been asked already. Looking at your cost of risk guidance for this year, it's clear that it's going to be a good year. But could you give us some color about 2022? And the use of macro provisioning when and if you are planning to release some of it? And the second one is on IFRS 17. Can you give us some color on the potential impact on this?

Azzurra, I will turn to Diony for your first question and William for your second one. Diony?

Yes, Azzurra. So cost of risk, as we are saying we have revised that the guidance. It's based on the fact that we've been a quite conservative in terms of provisioning. And as you saw, we kept all our buffers, very limited reversals. And actually, we have canceled the reversals, the models were leading to. We have a very limited actual defaults and the cost of risk Stage 3, as you saw, is low. It's mostly adding provisioning on existing size, but a very, very low number of defaults across the board. So definitely a combination of a strong risk profile, a good portfolio mix and effectiveness of government measures, which have allowed to absorb the shop in most countries we operate in. So based on the quality of our portfolio, the conservative provisioning and the outlook, which Frédéric has commented on where we remain constructive on the growth for '22, but still prudent until pandemic is not over. So we are not giving guidance for 2022. But what I can say is that we don't see a return to the mid-cycle cost of risk any soon.

William?

Azzurra, it's a bit early stage to give you a lot of details on IFRS 17, sorry, and any final conclusion yet. As you may expect, we started to work on that very carefully together with Claire. You will be clear in the next quarters that we'll be able to give you more detail. But there are 2 components, as you know, one, it should have an impact on the way we report P&L for insurance as well as the distributors here. In our case, a strong distributors, so the French Retail, first and foremost, not necessarily a big impact as we see it now. But of course, we have to fine-tune the analysis. On the bottom line, over the years. I mean there are some sequencing elements given the new methodology. And also, as I said, there is some element of the cost will rise go in the revenues and the reverse. I don't necessarily expect big impact on the bottom line overall. Then, there is a component on the capital side. And there, I think we have clearly coming to the conclusion that we will have a very manageable impact on the capital in 2023 when the norm is fully put in place.

The next question comes from Guillaume Tiberghien. He left the Q&A session. So we have no more questions for the moment. [Operator Instructions] No more questions.

Okay. I guess you have plenty of things to do during this day again. So again, thank you. Thank you very much for attending the call. Have a very nice day, and speak to you soon. Thank you. Bye-bye.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.