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

Ladies and gentlemen, welcome to the Société Générale conference call. Gentlemen, please go ahead.

Hello. Good morning to everyone. Thanks for attending this conference call. I know you have a very busy day with many release from many banks. So we try really to be as efficient as possible. We -- you have, as usual, the whole management team of Société Générale. I will leave the floor in a minute to Claire to comment the figures. I will comment no figures. I just would like to say a very strong start of the year, but I'd like to highlight very good results across all businesses. That's very important. Second, we initially had in mind to present our midterm financial road map. Obviously, I wanted to have clarity on Russia before doing so. So we are postponing by 1 quarter the event's communication. Third, I would like just to say that beyond the very strong results, the satisfaction is that we've been able to move ahead exactly on time on all our strategic projects, definitive agreements between Boursorama and ING. We had signed the framework agreement for the sale, the acquisition of LeasePlan, on the merger of two networks, the brand architecture and a second agreement with our trade unions signed by all our trade unions to enables us to deal with the social impact of this merger. If I turn the page to Russian, what I can say is the process is moving forward smoothly. And in terms of timing, what I can say is we expect that in the very few coming weeks. So we think we can move ahead quickly on that process. Let's -- you have the -- you know the impact, but -- and Claire will enter into the detail. The bulk of the impact is actually in practice already embedded in our whole Q1 and the residual impact in the second quarter will be very limited. We will book the impact in the second quarter. A word on ESG, next slide, just to say that it's at the heart of our strategy. In all our businesses, we are updating our new target for 2022 and 2025 in terms of sustainable finance to a figure of EUR 300 billion. As you can see on the slide, is roughly 1/3 of financing and 2/3 of bond issues where we play a leading role in those issuances. If I look at the next slide, Slide 7, let me just say, the current situation on the energy markets linked to the conflict in Ukraine does not change our commitment to shift step-by-step our portfolio of financing. We stick to our commitment in particular, regarding fossil energy, minus 10% by 2025 for oil and gas. Of course, exit in thermal coal in 2030 in the EU and OECD countries, 2040 elsewhere. As you can see beyond, of course this, we will look at the other sectors, and we are also working on our own, for example, account emissions. I now turn the floor to Claire, who will comment on the figures.

Hello, and good morning. So as mentioned by Frederic, Société Générale, we are in another solid quarter. The underlying gross operating income stands at EUR 3 million in Q1. It's up 38% compared to Q1 last year and 30% on a reported basis. This significant increase of the gross operating income results from the combination of strong business performance and the continued strict management on costs. Indeed, jaws are very positive. Revenues are up 16.6% versus last year while underlying costs only increased by 5.6% in the quarter compared to last year. This cost evolution is largely due to, first, an increase of nearly 50% in the contribution to the SRFs. Second, higher variable compensation associated with the high quarterly performance. And at last, the impact of foreign exchange. Stripping out these items and adjusting for the disposal of Lyxor, the underlying cost base is up less than 2% versus last year. Once again, these figures are concrete illustration of our cost discipline, which remains a key focus for the group. In the end, the underlying cost-to-income ratio in Q1, excluding the SRF is down almost 7 points compared to last year. It's 56.4% for the first quarter of the year. Let's now have a look at the cost of risk, Slide 10. The cost of risk remains contained at 39 basis points, which is equivalent to EUR 569 million -- EUR 561 million, with a large part of Stage 1 and Stage 2 statistical provisions 45%. The quarterly cost of risk largely relates to the Ukrainian-Russian conflict which impacts both onshore and offshore Russian exposures. In Q1, Russian exposures accounts for more than 60% of the total cost of risk in the first quarter. It comprises EUR 136 million booked on the disposed onshore exposures and EUR 218 million on the Russian offshore portfolio. So as a whole, EUR 354 million. Excluding the cost of risk booked on the onshore Russian exposures, the cost of risk at group level lands at 31 basis points. Based on our current assumptions, in an environment that remains volatile, we now anticipate the cost of risk to be between 30 and 35 basis points in 2022. It includes the cost of risk already booked in Q1 on the onshore exposure. Regarding the NPL ratio, it's stable at 2.9% and the gross coverage rate remained satisfactory at 49%. Let's turn to the next page on Slide 11. The key factors behind the breakdown of the cost of risk remain similar to back quarters. First, a limited number of defaults. We continue to see limited defaults, leading in Q1 to up to a complaint level of Stage 3 provisions in line with last year. Excluding the disposed Russian onshore exposure, it's even lower than in Q1 last year at EUR 277 million. And second, the prudent statistical provisioning. We continue to adopt a prudent approach with very few write-backs. We have booked additional overlays on sensitive sectors on top of the existing ones accounting during the COVID crisis. Then our inventory of Stage 1 and Stage 2 provisions slightly increased at EUR 3.6 billion, to retain the uncertain macroeconomic and geopolitical context. By way of comparison, it covers 2.8x the 2019 Stage 3 provisions. Let's now focus on our Russian offshore exposure, Slide 12. First, on our credit risk exposure, the off-shore exposure on Russian external counterparties is managed in a runoff mode and is carefully monitored from a risk perspective. It's being reduced up to EUR 2.8 billion in exposure at default at the end of Q1, thanks to good level of payment collections, in particular, in the trade finance activity with maturity on average short. The residual exposure is mainly composed of structured and secured loans for more than 70%. Transaction backed over by high-quality securities, such as insurance from more than 30%, private insurance cash, physical collateral, bank guarantees. Therefore, based on our last portfolio review and best estimates, we still consider the next exposure at risk to be below EUR 1 billion. To date, we have not experienced any payment default on that portfolio. Second, market exposure. So on market exposure, we -- there is a negligible residual exposure towards Russian external counterparties as of today. Since the beginning of the crisis, trades have been proactively managed and unwound at good conditions with minor financial impact. Let's now turn to capital and liquidity, Slide 13. The cost income ratio, the core Tier 1 ratio remains comfortably above requirements at 12.9% in Q1. It's also well, though, by our guidance, which is to have a minimum buffer between 200 and 250 basis points over MDA. Looking in detail the evolution of the capital ratio since Q4 has three main origins. The Russian crisis has an impact on the rating of various counterparties, notably Russian. These rating migrations have a negative impact of 21 basis points in Q1 on the core Tier 1 ratio, of which 40 basis points linked to onshore Russian counterparties that may be reversed post closing on the sale of remnant. The increase in interest rates is generating an OCI on the valuation of Sovereign, mostly within our insurance activities. It impacts by minus 12 basis points the core Tier 1 ratio. Third, regulatory headwinds from account for 35 basis points this quarter. It splits between the deduction of the IPC as requested by the ECP -- the ECB for 15 basis points and additional impact linked to TRIM and IRB repair for a total impact of around 20 basis points this quarter, out of the 40 to 50 expected this year indicated in last Q4. The RWA organic growth impact is compensated by the net earnings, past distribution despite the [ weight ] in Q1 of the contribution to the SRFs. Note that impact on the sale of our Russian activities, which is expected around minus 20 basis points, we should be mostly compensated by the reversal of the impact of the rating migration on the onshore portfolio, 14 basis points with a net impact of around minus 6 basis points expected in Q2. For the other ratios, they are also all comfortably above requirements and the funding programme is well advanced. Let's turn to business performance and let's start with the French Retail activity on Slide 16. Looking at the commercial activity. Loan production has proved dynamic in Q1. For example, home loan production is up 39%, production in corporate medium-long term loans excluding PGE increasing by 68%, thanks to a good level of activity this quarter. Globally, loan outstanding is up 1% compared to last year. Deposit collection remained steady, outstanding is up 5%. With respect to bench savings, we continue to see strong growth in flows both in life insurance and private banking, reflecting the quality of our clients on trial and the results of our strategic initiatives. In P&C and Personal Protection, the bank is also progressing in line with our policies. Moving on to Boursorama, Slide 17 now. On client growth, this quarter again, Boursorama posed a strong growth on the client base, reaching 3.7 million clients with a record number of new clients in Q1, close to 400,000. We now expect the client base to be between 4 million to 4.5 million by the end of this year. Reaching this target will benefit from the integration of ING clients, which is starting well. It's, however, premature to provide more precise guidance at this stage on the final outcome. On client's wallet, Boursorama continues also to progress on [ monitization ]. Loans outstanding are up 29% year-on-year at EUR 14 billion, with home loan outstanding being up 30% versus Q4. Deposits and financial savings are up 19% year-on-year with deposits 24. Looking at the P&L, Slide 18. Compared to Q1 last year, revenues, excluding PEL/CEL are up 6.4%. Net interest margin, excluding PEL/CEL is up 2.8%, mainly driven by top rate credit and private banking. This increase in margin is partially affected by the increase of the Livret A rate, whose weight on the net interest margin will grow over the year. Fees increased by 6.9% with a continued momentum in financial fees and a rebound in services. Underlying are up of 4.5% notably due to client acquisition cost from Boursorama and variable costs notably related to the profit sharing scheme and also to the SRF. Jaws are positive and the RONE adjusted for PEL/CEL is strong at 14.3% and 16.1%, excluding Boursorama. In International Retail Banking, Slide 19. Commercial dynamics remained steady, though. Volumes are increasing across all regions once again, loan outstanding are up 6% and deposits are up 3% at constant perimeter and foreign exchange rate in Europe. In Africa, despite more challenging environment, we observed a positive momentum with solid growth in sub-Saharan countries. The net interest margin is still very well oriented in Europe at 17% at constant perimeter and Forex rates, benefiting notably from the new interest rate hikes in Eastern Europe. Consumer finance activity also are doing very well with a 6% increase in revenues. Excluding Russian activities, International Retail Banking, of course once again, a very satisfactory performance this quarter with an underlying RONE at 17.5% and an underlying net income of around EUR 217 million. Let's turn to Financial Services, Slide 20. Insurance revenues are up 6% at constant perimeter and foreign exchange rates. Life insurance remained at a high level of outstanding at EUR 134 billion, with 36% share of unit linked. P&C premia are strong across regions with a 12% increase. Financial services to corporate put a very positive quarter with a 44% growth in revenues at constant perimeter and foreign exchange rates. ALD strong momentum continues with a record NBI quarter, thanks to a still very favorable remarketing environment with a used car sale results above EUR 3,100 per unit in Q1. In addition, primary activity is evolving very well with a 4.8% increase in the funded fleet despite current shortage in car deliveries. So as a whole, Financial Services was once again an excellent quarter with an underlying growing RONE of 28%, contribution to group underlying net income amounts to EUR 342 million in Q1. In summary, we observed another solid quarter in International Retail Banking and Financial Services results, Slide 21. Revenues are up 19.3% at constant perimeter and Forex exchange rate. Thanks to positive jaws, gross operating income is up 35%. Underlying RONE is at 16.5% with a contribution to underlying group net income of EUR 453 million. Excluding the activities disposed in Russia, the underlying RONE is around 23%. Turning to Global Markets and Investor Services, Slide 22. Total revenues are up 19% versus last Q1. Starting with Global Markets, it was a very excellent quarter, the best one since 2009 with revenues amounting to EUR 1.8 billion. This new strong quarter validates our strategic road map and its good execution. This strong performance is well balanced between fixed income and equities but also between products and regions. Equities continue to be strong, supported by high client demand. We kept nonchanged risk profile and strict monitoring of our risk. At EUR 1 billion, NBI increased by 20% versus the high Q1 last year. On Fixed income, [ we rate high for high interest ] for inflation products and relativity on ForEx. The environment was favorable to our business mix, margin toward rates in Europe. All in all, revenues on our fixed income platforms are up 22%. Security Services also showed a good quarter with a 7% increase in revenues compared to last year. Let's turn to Financing & Advisory, Slide 23. Revenues are up 24% versus last Q1. We benefited from a good dynamic natural resources, notably in renewable energies and trade commodity finance, and also captured sustained growth in asset-backed products and registered good results in investment banking before the beginning of the crisis, even though capital markets have slowed down since then. In Transaction Banking, performance continued to progress with a 26% increase in revenues compared to last year, thanks to better environmental for this activity with rates increase. These validates the investments done in this activity as presented in our strategic road map. To sum up Slide 24, GBIS delivered an outstanding quarter, driven by one the one hand, a strong dynamic across businesses, with revenues up 18% and on the other hand, a disciplined cost management with costs only increased by 5.6% compared to last year, mostly due to higher reserves need to earning growth and higher contribution to SRF, which is up [ 60% ]. Excluding SRF and [indiscernible] 2.6% year-on-year. Despite the high effect of risk linked to offshore Russian counterparties, we have gained a very strong underlying RONE at 20.8% this quarter, and 24.1%, excluding SRF. Underlying net income amounts to EUR 734 million, which a 17% increase versus Q1 last year. On Corporate Center, Slide 25. I will make it short. As we know, the operating expenses include transformation charges for a total amount of EUR 143 million. The gross operating income stands at minus EUR 139 million in Q1. Frederic? I'll leave the floor.

Thank you very much, Claire, and I will be very short in my conclusion, just to highlight that beyond bolstering of course on this strong commercial dynamics in all our activities in 2022, it's a pivotal year to establish in the next 4 quarters. What I would say, a new business model or at least more balanced and more resilient with, of course, a new bank in France, legal merger should take place 1st January 2023. The [ rate ] migration will take place in the first half. Boursorama with 4 million to 4.5 million clients and the undisputed leader in online banking in France. So very attractive, I think, positioning in this French market, bolstering the transformation of our international retail banking, which are delivering very strongly. Of course, on GBIS, show to you that 2022 will be another year of strong delivery in a very different environment, as we can see, of course, in the first quarter. And of course, the creation of this mobility pillar around ALD/LeasePlan, we plan, we have the ambition to close the transaction at year-end. So very intense months ahead, but we are very encouraged and all our teams are, of course, very interested by this very strong start of the year. We are now ready to answer your questions. Please, let's try to stick to this good discipline that we have had so far. Two questions per person, floor is yours.

[Operator Instructions] First question from Omar Fall from Barclays.

Could you give some more color on the Rosbank sales process, please? Specifically, what elements need to be finalized before closing? Is it just local regulator approval? Then over what time frame with the legal transfer of the assets occur subsequent to that? And just in general, what do you see as the risk to the closing of that transaction at this stage? Then secondly, could you just give an outlook for French Retail revenues this year, please? I guess, on one side, we've got the Livret A impact and on the other activities seemingly better and the interest rate sensitivity that you've got is mainly coming from French Retail, so that should start as well.

Omar. I will leave the floor to Sebastien Porto to comment on the French Retail. On your first question, what I can say, first, we have to have the -- some local authorization, Central Bank of Russia antitrust, which is not an issue as the buyer has no banking activities. We don't have any other approval from European supervisors. Second, it's a transaction with -- which was with no due diligence. So it's not the question of the due diligence process. But of course, due to established framework going forward of this bank, established payment or also the settlement of the payment, it's the traditional things, which are not particularly complex that we have to organize. And so what I can say is it is moving ahead smoothly. We have not today one big obstacle at this stage. And so again, what I can say, and I can't give by definition or specific, the very few coming weeks, which means in a short timeframe than 4 weeks ago. Again, our whole attention is on this topic. And we know it would be very positive for the group. That's what I can say to you. There is, again, a process which is moving ahead smoothly at this stage at least. If they were one -- if I had to highlight one complexity, of course, if [ Mr. Potanin ] was to be sanctioned in the coming days before the closing, we will have probably then to go and try to ask for a license. But I think this is really the potential issue, I could imagine on the road map of this process. Sebastien, on the French Retail?

Yes. On the French Retail, let me start by saying that our performance realized in Q1 2022 is a very good one compared with 2021, but also with 2019, we are clearly above and this performance was supported by both fees and net interest margin. Having said that, we don't take for granted that this performance would be replicated each and every quarter in 2022 for different reasons. The first one is an environment which remains uncertain and an increase in deposits even at the slower pace, which is weighing on the deposit margin. So combining context of higher inflation in subcontext, the government who already decided last January to increase Livret A interest rate could decide again in the coming months, another increase with another negative impact on our revenues. And keep in mind that the decision we took in February cost us on a full year basis around EUR 100 million. Third point, there are some base effects which will materialize in H2 as we benefited in H2 2021 from the second modification of TLTRO and the [ prices ] of state-guarantee loans. So it creates this base, in fact, effects in H2. And last point, obviously, the acceleration of Boursorama's client acquisition, and particular, the transaction with ING will have an impact on our revenues again in H2.

Next question from Flora Bocahut from Jefferies.

Yes. The first question I wanted to ask you is regarding the cost income guidance for this year. You have provided us with a guidance with Q4 results of -- for '22, 66% to 68% cost/income ex SRF. Obviously, you do so much better than that in Q1 at just above 56%. So I just wanted to ask you whether that guidance is maintained. And if it is, why the cushion there? And the second question is regarding the market business. A year ago, so in May 2021, you organized a deep dive on GBIS. And back then, you gave us a target of EUR 4.5 billion run rate for revenues in market on average. You highlighted then that you had better resilience, better predictability also of your revenue base. Now we are a year later. And obviously, you've done so much better than that over the past quarters. You hit a record in market revenue this quarter. So just wanted to ask you if you could update that guidance or if you stick to it despite the strong performance lately.

I will turn the floor to Claire and Slawomir, who is on the line too. Claire.

Yes. Flora, so the low underlying interest income ratio, excluding SRF in Q1, it illustrates perfectly the quality of the model with on the one hand, a solid overall performance of the group and on the other hand good -- a very disciplined management of the cost. We are very early in the year, it's only Q1, so we did not revise our guidance at that stage, but make sure that we manage our costs in a very disciplined way, and it would be the case for the rest of the year.

Slawomir, on the market revenues?

Yes. Let me put it this way. We have gone through a number of quarters where the market conditions were conducive for our business, coupled with a very good execution of the repositioning, redesigning that we have to do. And if I take this quarter with a lot of things going well from sales activity, capacity to manage our risks, sales retention, [indiscernible] retention rate and a mix effect, which is favorable, too, right? I mean you've heard me in the past explained that while credit was booming for some of our competitors, we were at a slight business mix disadvantage there. We're obviously at a slight business mix advantage when rates are so active as they were this quarter. So what I'm saying is the reason we're outperforming is we're doing well what we intended to do. We benefit from growth opportunities and from markets which are conducive to us. Now do we believe that our -- through the cycle, average performance in our capital market activities might be better and revised upwards? Most likely, it's not going to be revised upwards to EUR 7 [ billion ] a year, that's for sure. But I think more to come in our Q2 update on the longer-term targets. That's what I can say at this stage.

Thank you Slawomir, next question?

Your next question is from Jon Peace from Credit Suisse.

So first question is on your helpful cost of risk guidance of EUR 30 million to EUR 35 million. I appreciate it includes what you've taken on Russia in the first quarter. But I just wondered you'd embedded in that guidance for any additional costs on Russia either in the second quarter for the onshore business or how you think about the risk of the offshore business as we go through the rest of the year. And then my second question is just on the dividend. I assume you'll exclude the EUR 1.1 billion noncash charge from the Russian exit, are there any other adjustments you make through earnings? I'm thinking, in particular, the restructuring charges on French Retail, which I guess you're running through operating expenses, so maybe they're not excluded.

Jon. I will turn the floor to Sadia Ricke, CRO, for your first question, and we'll take the second one.

So for 2022, the guidance is primarily based on our current assumptions of an environment that remains volatile. It does embed the cost of risk accounted in Q1 2022, which is, [ as we had discussed ], very largely due to the Ukrainian and Russian conflicts and the ensuing sanctions, which impacts our onshore and offshore Russian exposures. And as you've seen, it comprises as well, a large part of a statistical provision in S1 and S2, which account for 45% of the Q1 '22 cost of risk and does not factor any significant write backs in 2022. And excluding Russia, we do not expect at this stage material cost of risk for the rest of the year with the reference of default, which remains limited, particularly in France. Now turning to the offshore portfolio, as you have seen in the Q1, we provide for a contribution in terms of provisioning of roll of EUR 218 million. Again, that is largely driven by S1, S2 components. And so mainly forward looking, again, with this large provision in S1, S2 up to EUR 223 million and we take comfort as well from the constitution of the nature of the various facilities composing this offshore portfolio.

And we have communicated again reiterated, Jon, that what we see really at risk among the EUR 2.8 billion, which has been reduced in the first quarter is below EUR 1 billion. So we think it's, again, something very manageable. On your second question, let me just highlight. First is, we want to project an underlying performance, underlying net results, which is the structural way of the company to deliver revenues, net profit and, of course, a return on tangible equity. That's one thing. And we exclude and Claire will answer more in detail if you wish, but in particular, exceptional items, M&A, whether it's a loss or capital gain or CTA, cost to transform. So it's a way to again I think better project the capacity of the business to deliver in a structural way. Then we have our distribution policy, which is based on this item, which takes, of course, into account on top of that results, immediate results, the capital trajectory, and which is, as you know, 50% of this underlying income, which is a split between distribution of the dividend and the share buyback. That's what I can say regarding your question. So the idea, if you wish, in that -- from that perspective is to consider the Russian impact, the Russian loss as an exceptional item and not in the underlying profits.

Next question from Giulia Aurora Miotto from Morgan Stanley.

Yes. So my first question is on the Russian offshore exposure. You very helpfully highlighted that the estimated net residual -- sorry, the exposure at risk is lower than EUR 1 billion. I wonder how -- what do you consider essentially at risk? And also, I saw a headline this morning saying that the estimate net Russian exposure to date was less than EUR 1 billion. So how do I reconcile that versus the EUR 2.8 billion. So essentially, a clarification on that would be helpful because the way I read it is that I would expect that to end up in provisions at some point this year, but maybe that's too conservative offering on my side. So that's my first question. And then I just want to be 100% sure that I understood your answer to the previous question. So there will be 2 one-off impacts from the [ sale ] of Russia, EUR 2 billion and the write-off of the net book and EUR 1 billion noncash item. So both of them would be considered exceptional, and so will not impact the dividend. Is that correct?

Yes, Giulia, I will let Slawomir answer your first question. But exactly, I mean, again, let me -- there is one concept that we like, as I said, underlying net profit. If I were to include some part of the Russian impact, which is an exceptional item, I think we will agree, I would, I think, distort this capacity -- this presentation of the group capacity to deliver profit. Then we have a dividend policy. We have a dividend policy, which is based on the payout ratio based on this. If I may say, from a [indiscernible] point of view, if we wanted to adjust the distribution policy, we will adjust the payouts. But at this stage, as I said, we would confirm that we want to implement. There's no reason to change our dividend policy. Is it clearer?

Yes.

Okay. Slawomir, perhaps can you elaborate a little bit on what we mean by this EUR 1 billion...?

Yes. So again, EUR 2.8 billion is the concept of EaD, so Exposure at Default, mostly within Global Banking & Advisory business, which is fairly diversified in terms of sectors, but obviously with a heavy representation of natural resources and energy there. And so when we -- the translation rate, the -- how to put it, the 2.8 becomes 1 -- less than EUR 1 billion of at-risk exposure through the line-by-line analysis and judgment on what is the exposure which doesn't benefit from very strong security structure or a guarantee like ECA. So you have to have in mind that, let's say, roughly 1/3 of this exposure in gross commitments is, for instance, ECA backed. So you understand that this exposure is obviously part of the EaD, but it's not part of what we would consider at risk. And so once we have done this analysis line by line, we came to the conclusion that out of this EUR 2.8 billion of EaD, what is theoretically at risk is less than EUR 1 billion. Now it won't translate, it won't translate in a 100 provision because, again, it doesn't mean that this is where we're going to lose. It means that this is the portion which doesn't benefit from guarantees, which make the repayment extremely likely. I hope this is clear. I can give it another go if it isn't.

Next question from Jacques-Henri Gaulard from Kepler Cheuvreux.

Two quick questions. The first one, on the Corporate Center, I think you mentioned the positive value change of financial instruments. I was wondering if this would reverse potentially towards the year-end and if the volatility is in here, is something that, yes, is a bit artificial. And the second question, clearly, if you don't mind coming back on the CET 1 impact, which for an old brain like mine went a little bit too fast, particularly the regulatory impact on and the breakdown. I think I noted minus 20 bps on TRIM out of the 40 bps you're expected in 2022 and IPC minus 15%. But if you can just come back on that, that would be great.

Jacques, yes, well I will leave Claire answering your question on the revenues of the Corporate Center and the potential reversibility and then explain probably the IPC, which is again related to this nasty Single Resolution Fund, as you know, which fortunately will end next year. Claire?

Yes. So regarding the revenues of the Corporate Center, we never guide on the revenue. So this year, once again, we will not guide on the end of year revenue. Regarding your second question regarding the regulatory impact. [indiscernible] we have 2 kinds of the regulatory impact. The first one is the implementation of some TRIM and IRB repair adjustments for a total of 20 basis points out of a total amount of 40 to 50 basis points we expect this year. And the second impact is 15 basis points regarding the IPC deduction. So you may know that the ECB requested that all banks would deduct the IPC, from their core Tier 1. So some of our peers will deduct it on an accrual basis all along the year. We made the decision to deduct it in one shot at the first quarter and the impact is the 15 basis points, which closed.

And again, the IPC is the noncash contribution...

Yes, exactly. It's a...

[indiscernible] of contribution, which is not paid directly and is charged through this...

Regarding the SRF contribution, so Frederic may speak how of this contribution because he is quite set about it. So this contribution is paid in 2 parts. The first one in cash which you have in the operating expenses and on one-off mode at the first quarter of the year. And the other part is committed amount we are committed to pay and the ECB requested to all banks to deduct it from their core Tier 1. So all of the banks went to court, but we have been requested to do that in the [ threat ] later. So all banks, all French bank will do so this year, some of them on the [ low cost basis ], the others on an upfront one.

Next question from Guillaume Tiberghien from Exane BNP Paribas.

Two questions, please. Number one, on the resolution fund. Can you tell us for next year, whether we should expect a further increase? And then for 2024, how much would you expect the contribution to fall? Would it fall like 80%? The second question relates to Boursorama. You had highlighted a year ago also that once you reach EUR 4 million or EUR 4.5 million, you would stop advertising cost. And so this target of EUR 4 million seems to come earlier than expected, thanks to ING France. Does it mean that we should expect Boursorama to be already in profit next year as opposed to '24?

I will leave Claire explaining on the SRF mechanism and then turn to Philippe on the format playon.

So the SRF mechanism aims at covering 1% of the deposits in the Eurozone. You may remember that at the very beginning of this kind of framework, the target was around EUR 50 billion. We now have a new target which is considering a steady growth in deposits, which is around EUR 80 billion for all banks. So increase in our contribution is mainly correlated to the increase in deposits in euros. You have other mechanisms such as adjustment or things like that, but the main driver is the increase in deposits. Regarding the end of the SRF, as far as today, we consider and we see no reason why this mechanism should come to an end. So considering that shouldn't come to an end. So consider growth as -- of course, as the target is to cover 1% of deposits and maybe there may be some small adjustments to cover if we did an increase in deposits. But after 2023, we see no reason why this contribution shouldn't come to an end.

To clarify, what contribution do you expect next year from 864 this year? .

So we still haven't -- we still haven't -- the invoice for next year. But keep in mind that it should be correlated to the amount we pay this year with a potential increase related to the level of the deposits in Eurozone. So it's a very complex mechanism, the way the SRF contribution is calculated. We know by the end of the year, we have a better view on the next year contribution. So as far as today, as main estimate is something [indiscernible] to our anticipation of the level of deposits in the Eurozone, but we will be in the position to give you a better view by the end of the year, considering the complexity of this mechanism.

And I think just to add beyond the increase of site deposits, there is also the allocation team between the different markets was initially factored in a way that there was an adjustment and it's, again, mechanically in the system with the French banks, in particular, I don't know necessarily for the other markets; everything being equal, are paying more year after year, but the bulk of it is probably in 2022.

Exactly. The mechanism Frederic refers to is the fact that at the very beginning of the process, the base of the aspect of the contribution was a local one, which is a French one and we progressively switched to a European in a mutualization view. And the huge impact this year for all French banks is also related to this kind of adjustment and mechanism, which could come to an end this year.

And if I am absolutely cynical, I will say to you that the mechanism was very complex, well understood by European negotiators led by the French ones, but effectively, it's a system where large banks, and in -- particular in Europe, French banks are paying an excess amount, let's face it. And again, we have -- we can't do a lot about it. It's a kind of black box. As I said, I'm pretty sure that we are still being so vocal with the French government. That's, again, nothing similar, will be put in place. And that, again, what we will have to pay beyond 2023 is just a marginal element of increase of the site deposit, which is by definition, much less than when you have to constitute the fund. But it is becoming a very significant tax on large banks and in particular, [indiscernible] banks, and that's why I am so unhappy about it. Now let's switch to Boursorama. Philippe?

Yes, thanks for the question. So at this stage, we have not changed our targets, and we will have the opportunity to provide you with updated targets at the end of the process of integration of ING in finance. What I confirm is that for sure, we continue to target for high profitability in 2024. Maybe I take the advantage to share with you the 3 axes of our strategy on Boursorama. The first one is to continue to expand this client base. I think we are building a unique customer base in France with the average old age, it's 38 years old. These clients are reasonably wealthy and with high potential. So the first objective is to continue to build this client base. The second one is to increase the revenues with 3 levers. The first one is the equipment of the client and making sure that they are real clients, which is the case. The second lever is the growth of loans of the assets under management on the deposit. And we are making sure that it works both globally and quarter-by-quarter. And the third -- the third lever is through a partnership with third parties. And the last objective is, of course, to manage to control the client -- the cost base with a significant decrease of customer acquisition costs. For example, during the last quarter, it has been reduced by 20% and of course, to maintain at a low level all the over cost. I remind you that we had less, about 900 people in Boursorama. So taking care of this huge number of claims.

Next question from Kiri Vijayarajah from HSBC.

Yes. Couple of questions, if I may. Firstly, on capital and your capital waterfall, you show on Slide 13. And in particular, I know you talked about various elements. But on OCI movement in the adverse rating migration. Is it fair to assume those 2 items have continued to be a headwind after the quarter end? Or is it, as those items could a bit more stable into April and May? And could you just remind us how much of your CET 1 capital is made up of OCI reserves at the first quarter stage? And then secondly, just a quick clarification on something you said on French Retail Boursorama, ING France. Do you think the consolidation that you're doing, Boursorama getting bigger, taking out a reasonably sized competitor is helping to lower customer acquisition costs? Or is it really a case that there's still plenty of other challenges there in the French market and the customer acquisition costs probably remain at that kind of current level for a while yet. Just some color on how customer acquisition costs evolve post consolidation in the market.

Kiri, I will let Claire answer your question. I think definitely, we have the ability to reduce step-by-step the cost of acquisition. It's not just a question of consolidation of the market, but the sheer scale that Boursorama is getting because there are also some fixed elements in the acquisition cost. It's not just variable, and we are benefiting from that with also this brand which is better and better known. It's a very well rated bank. So there is a capacity to attract. And their strategy is also, of course, to step-by-step decrease the cost of acquiring clients. Claire, on whether it's a recurrent item and the amount of OCI ?

Yes. So the OCI impact comes from our investments in Sovereign, which are booked in the Corporate Center. It mainly comes from -- so the mark-to-market on the Sovereign that goes to OCI. So minus core Tier 1 when the mark-to-market is negative mainly comes from the -- our buffers but they are asset swaps, so they are protected against interest rate variations. And so the impact that we faced this quarter is mainly related to some investments of some own funds in our insurance business in Sovereign. So this impact is related to the interest rate increase. It's quite -- it's quite of less significance than for some of our peers because of the interest rate protection we have, mainly on our [indiscernible] . So the OCI variation will depend on the interest rate variation. But keep in mind that most of our interest rate is hedged so this explains why this impact is less significant than for some of our peers.

And the amount of OCI, you have that on the balance sheet -- will provide you to. Kiri, we'll provide you later, Kiri, okay?

Next question from Tarik El Mejjad from Bank of America Merrill Lynch.

Just a couple of questions, please. First, on the costs -- operating costs. Can you tell us -- give us some color on what you see on the ground in terms of already inflation you've seen in Q1? And what should we expect in the coming quarters in France and in other regions? And then if you can have update us, please on the sensitivity to rate hikes in the Eurozone and CEE, given that the time frame for potential rate hikes has changed and the magnitude as well potentially? And just one clarification. So the remaining regulatory costs you have for this year is 20 basis points, if I understand, from TRIM and IRB repair and Basel IV is still 110 basis points.

Tarik, I will let Claire answering your question on the sensitivity of the interest rate -- the interest rate margin to interest rates. Very quickly, again, on the regulatory side, yes, Basel is still unestimated. We have not changed the estimate to this 110 basis points. And again, as we've said, 20 is already booked regarding the return on TRIM, and we expect 40 to 50, so it's between an additional 20 and additional 30 basis points. On the first question on inflation, let me just highlight, we are, again, confident with the management of costs this year and we have negotiated the salary increases. We don't think there is anything there in 2022 to expect negatively. And again, so as we said, we are not changing our guidance. As you saw, we are doing -- we have done much better in the first quarter. We have not changed our guidance. We will wait a little bit more. But we feel pretty confident with the cost monitoring. Of course, the inflation varies from one country to the other. In Europe, in general, keep in mind that it's probably lower than in the U.S. or even [indiscernible] energy market because there is a buffer with the government's states limits by absorbing or limiting the of the energy prices. Claire, can you answer Tarik's questions on the interest rates?

Yes. So regarding interest rates, I would like to remind you that we are absolutely in a very particular interest rate environment and very uncertain with very different views from economies from which some of them I consider that we should face a lower, longer -- low rate. Others anticipate that high inflation and high interest rates forward have an upward trend. So we are really in an underpin environment. My second disclaimer, which is quite important is that the impact of an increase in the interest rates is, of course, very positive in the long term for the banking industry. However, the impact on the net interest margin depends on several factors. And for example, the behavior of the clients, the magnitude, the speed of the increase in rate hike, of course, also the absolute level of rates. So all that being said, at this stage and all things being equal, the sensitivity of our net interest margin would be around EUR 80 million at the group level for year 2 in case of a probable shift in the interest rate terms. But once again. Yes. What did I say? For 10 basis points, of course. So -- but once again, be very cautious with this estimate because, of course, it depends on the client behavior. And also, if you have a high inflation, you will have, for example, for the French bank, a huge impact and a strong pressure on the net interest margin, considering the Livret impact.

The line was cut. How much you said for 10 basis points? How many millions, sorry?

For 10 basis point, I think at the group level, which means all our businesses included EUR 80 million for year 2. Is it clear? And at group level, for all our business, which mean African and French and the Eastern Europe ones.

Next question from Delphine Lee from JPMorgan.

So I've got 2 questions. The first one is on -- just to come back on the Russia exposures. Well, first of all, on Rosbank, just on the process of the sale because I mean, back in April, you were saying within weeks, and now you're still staying within weeks, just wondering sort of what are the main hurdles? Is there anything regulatory or -- I mean, just to get a bit of clarity on the process. And also on the offshore exposures, can we have the duration of that book just to understand how quickly you could potentially reduce that -- those EUR 2.8 billion of exposure? My second question is on -- just to go back on Tarik's questions on the interest rates. What assumptions are you using when you guide to that $80 million regarding deposit beta? Do you assume that the current account or demand side deposits remain at 0. I mean, just to understand a little bit what assumptions you're using for that sensitivity?

Delphine, I will let Claire answering your second question regarding, again, the interest rate sensitivity on the weeks, maybe it's a question of language. What we've said on the 11th of April, we are just the fifth of May. So probably we are now 4 weeks later, it would be within weeks. By definition, in a process like this, you don't know if it's 6 or 10 weeks. So it means that whether it's 6 or 10 weeks, minus 4, I mean I take these figures as an example, you go from 2 to 6 if my maths are right. So it's within the second quarter. I cannot tell you within -- whether it's 2 or 6. By definition, in this process is, as I said, there is no today, there is nothing. The process is moving ahead. No big obstacle, which is stopping the whole thing, but it takes some time. And again, we are just 4 weeks from the announcement. That's what I can say. So again, if I -- and again, maybe my English is not right, but I was saying maybe the additional comment was very few weeks, which I see as less than within weeks. I think my English, which is not good enough. Now Claire, on the kind of assumption?

Yes, I understood as coming back to the net interest margin. The kind of assumptions behind the figures that I gave. So the first one is at the group level, I mean, including all our business clients, Eastern Europe, Africa and French Retail. The second one is that it's for translation -- parallel translation by 10 basis points of the interest rate curve. And the third one is that it's at nearly constant or equivalent balance sheet. That's why I put so many disclaimers because as you see, the client behavior may have an impact because one of the important requisite behind these figures is this notion of equivalent balance sheet. Of course, it's mandatory to assess the impact.

And if I may -- if I understand well your question, we stick to, for example, in France, we don't pay site deposits. So we don't take the assumption that we would pay. But we model and we consider in I&M, that, of course, we might see shift from site deposit to other products at certain level of interest rate in the ALM. So it's more through the dynamic modeling than by considering, we would pay 50 basis points on site deposits in France. It can be different in other markets. By the way, of course, Czech Republic or Romania, depending on the local practices. Yes, sorry. I was -- sorry, forgetting Slawomir. How quickly can you reduce the offshore exposure? .

So the schedule, is 2 ideas. So the schedule is it is lowering -- the exposure is getting lower fast with the following, let's say, without disclosing the exact maybe figure right now, but let's say by 2027, you have little less and everything that's less is basically ECA backed. So that's the answer I can give you.

And could you [ provide us ] an indication in the shorter term?

Short term, you can say is by 20, it's more than EUR 1 billion less in the next 2.5 years. And the farther you go, the lower the risk because the long-term exposure is the one that is the most ECA guaranteed.

Thank you, Slawomir.

Next question from Stefan-Michael Stalmann from Autonomous.

Yes, thanks, everyone. I want to ask, please, on Rosbank. The -- you have these 2 special items coming up in the second quarter, the impairment effect and the OCI recycling. Can you give us a guidance on whether you expect a tax expense or a tax shelter against these losses, please, in the second quarter? And the second question relates to your capital progression. So you currently have a buffer of 370 basis points, but we already talked about the 110 basis points coming off from Basel IV. LeasePlan will be about 40 basis points. You still have the last leg of TRIM. So basically, your buffer drops to around 200 basis points on a pro forma basis, which is still in line with the lower end of your target, but obviously not as comfortable anymore. Are you planning anything? Any particular actions over the next, let's say, 12 months to get the buffer up again, the pro forma buffer?

Stefan, tax shelter, I'm turning to Claire. I think we were not considering any specific benefit from a tax perspective, to be frank, in our tax computation. And second, well, we consider we will have a good capital generation this year to be beyond your pro forma calculation, the core Tier 1. As I said, we are confident in the performance of our businesses. So we think it will, of course, help in 2022. And there is no specific action beyond the disciplined approach on our organic growth of risk weighted assets. And as I said, a good result. We can, of course, permanently also take out capital through securitization, synthetic securitization like we did in the past. But this I would say is part of the usual business, if I may say.

Next question from Matthew Clark from Mediobanca.

Can I ask a question on your mortgage appetite, please? So in the past, you have pulled back and ceded market share when you thought mortgage pricing was a poor risk reward. So I'm just curious how you see the current environment? Have you managed to satisfactorily reprice your mortgages for the rise in long rates. And I guess, how does that affect your appetite? And at what point would you rather buy a government bond 1.5 basis percent rather than issue a mortgage at 120 basis points or something like that? How are you thinking about mortgage pricing at the moment?

Matthew, I will turn to Sebastien because I guess your question is mainly on France.

Yes. Matthew, so on mortgages, as you have seen, the production was geared in Q1. Robust, I would say. Having said that, the increase in interest rates put some more pressure on our margin in the coming weeks with more pressure on the margin in the coming months as far as mortgages are concerned. And obviously, the market will adjust, but it will take, I guess, a little bit time before all the competitors addressing their pricing. So we will keep our selective credit policy, which aims to protect our market share, but also product our margin. And at the end, protect also the cost of risk.

Next question from [ Matt Nemish ] from UBS.

I have 2 questions, please. The first one is on operating expenses. I think you had a 5.6% year-on-year increase in underlying cost terms. And it seems like the large part came from increase in variable comp presumably in the markets businesses. If I stripped it out, the increase is actually only around 3%. I'm just wondering, is this a good indication for the remainder of the year? And I'm being mindful that you still haven't revised your cost income ratio of 66% to 68%. So that's the first question. The second one is just a technical one. Could you give us a sense of the expected remaining transformation charges for this year? .

I will turn the floor to Claire regarding the additional CTA. On the cost, just to reiterate, on the fixed salaries, we have yearly negotiations, and we have achieved these negotiations. So we don't expect a big switch from that. And for the rest, let me highlight that we are permanently pursuing our different efficiency plans. So if I may, what you see, as you said, and beyond, of course, the adjustment of variable compensation to the level of performances like last year, is the result also of a permanent focus on many fronts. And as I said, we are confident with our guidance on the cost income and with changes in the cost if needed. But at this stage, we don't change it. Perhaps on the CTA?

Yes. So regarding the CTA, let's remind that the transformation charges are booked in the Corporate Center and are not in the underlying results, which is used, of course, to calculate the distribution provision. So this being said, when it comes to 2022, most of the expected restructuring charges related to France Retail merger with the bulk of the remaining costs booked in 2022. I mean around from EUR 350 million to EUR 400 million out of the remaining EUR 500 million to EUR 600 million. In addition, we anticipate transformation costs related to the integration of LeasePlan. It will be accounted as soon as 2022. It means between EUR 100 million and EUR 150 million, and on top of that, we will have transformation charges associated with our other initiatives, GBIS, [indiscernible] sanction and other efficiency plans related, for example, to our IT savings plan.

We have no more questions by phone. Please go ahead for the conclusion.

Okay. Well, listen, no, I will take no time for conclusion. Thank you very much for attending. And again, I look forward to seeing you through and keep safe. Thank you very much. Bye-bye. .

Thank you, ladies and gentlemen. Thank you all for your participation. You may now disconnect.