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

Ladies and gentlemen, welcome to the Societe Generale Q3 2022 Conference Call. Gentlemen, please go ahead.

Hello. Good morning, everyone. Thanks for attending this call. I hope you are all well. As usual, with Claire, our CFO, I will try to make a short presentation and then the whole management team will be at your disposal to answer your questions. Let's turn to Slide 3, which is the summary of our performances in the third quarter, obviously, a strong quarter. EUR 1.4 billion of net profit in terms of underlying and 1.5 reported -- EUR 1.5 billion, double-digit return on tangible equity. If we look at the first nine months, the underlying net result is up more than 11% compared with last year, which was already, as you know, a historically high level of results. And the underlying return on tangible equity is for the first 9 months at 10.4%. During the quarter, revenues were up, slightly increasing in French retail, strongly growing in both International Retail and Financial Services, Global Banking and Investor Solutions. And overall, the good performances of our business. Regarding costs, we continue to maintain a strict discipline, leading to an underlying cost/income ratio, excluding the single resolution fund of 60.7% in the third quarter and below 60% for the first 9 months of the year. On that basis, we revised downwards our guidance of cost/income ratio, including a single resolution fund below now 64% for the year. Regarding the cost of risk, obviously, an important item, defaults remain very low at 10 basis points with no sign of material deterioration of asset quality on the contrary. Our NPL ratio is further improving compared with the end of June this year. We have decided to remain prudent in this uncertain environment and maintain a cautious approach by further strengthening the stock provisions on S1, S2 assets. Overall, the cost of risk is at 31 basis points for the third quarter and 66% is on S1, S2 provisioning. On capital, thanks to a solid capital generation with our earnings, the CET1 remains strong at 13.1% post provision for distribution, up compared with the end of June and it is now 380 basis points above requirements. Note that the 2021 share buyback program is well advanced, and we expect to complete it by the end of the year. Lastly but importantly, we carry on making good progress regarding our strategic initiatives. In France, we have received all approvals from the regulator for the merger of the French networks, which will take place on the 1st of January 2023. And then we will have to -- of course, manage the IT migration in the first half. On Boursorama, we have successfully achieved the migration of the ING clients, with 2/3 of the eligible clients have been migrated, and we have now more than 4.3 million clients. And regarding the acquisition of LeasePlan, the approval processes are on track. We expect the right issue to occur before the end of this year and the closing in the first quarter 2023. Slide 4, a brief word, just to highlight that beyond, of course, delivering all these elements, we are also focusing on the longer term regarding ESG. And we have announced an acceleration of the alignment of our credit portfolio towards NZE scenario and 1.5 degree increase of temperature scenario. We have -- we have regarding, in particular, the most diluting portfolio, the financing of upstream oil and gas. We had, a few quarters ago, commented -- communicated a target of minus 10% reduction in absolute terms, in billions of euros between 2019 and 2025 of our portfolio. We have decided to basically double the reduction rate to minus 20%, at least. And we've also new targets in terms of CO2 emission for this portfolio, minus 30% of the Scope 3 figure between 2019 and 2030, we have also improved our target regarding our power portfolio. I will now leave the floor to Claire, who has a very sore throat, but I hope it will be fine. Claire, the floor is yours.

[indiscernible]. So as Frederic just mentioned, the group costs in Q3 -- in Q3 had a very solid underlying performance in the continuity of the previous quarter. At EUR 2.5 billion, the underlying gross operating income is up 2.9% versus last year, which was already a very strong quarterly outcome. Compared to 2019, the increase of the gross operating income is even significantly stronger and close to 50%. It illustrates the very solid commercial performance realized by our businesses while containing at the same time, the evolution of [indiscernible]. Therefore, and despite an inflationary context, results are positive, and the underlying net income ratio, including IFRS, continues to improve at 60.7% in Q3, is 1 percentage point lower than last year and even 6 points below 2019. Adding to a very solid first semester, the performance realized in the first 9 months of the year is remarkable [indiscernible]. Underlying revenues have increased in all our businesses compared to last year. At group level, they are up 10% versus 9 months last year. And in the meantime, costs remain under control with an increase of 5.4%. It's mostly a -- by the contribution to the SRF for EUR 208 million, the variable compensation item for EUR 142 million and Forex impact at EUR 165 million. Excluding these variable items, the other costs increased by a moderate 1.3% versus 9 months last year. This strong outcome achieved so far leads us to realize [indiscernible] our 2022 guidance for the cost/income ratio, excluding SRS on an underlying basis, which is now expected to be below 64%. Turning on to the cost of risk, Slide 8. It remains contained for all the business years and is mostly composed of statistical provisions booked on Stage 1, Stage 2 assets as we will see just after. At group level, the cost of risk stands at 31 basis points in Q3 and 29 basis points since the beginning of the year. This includes around EUR 69 million of additional purchase provision booked on the remaining Russian exposure, which has continued to steadily decrease to EUR 2.3 billion at the end of Q3 2022 from EUR 2.6 billion a quarter ago. We still expect the net exposure at risk on these assets to be below EUR 1 billion. The total amount of provisions covering this net risk now amounts at EUR 452 million. Overall, the asset quality remains very good as illustrated by the continuous decrease of the NPL ratio, which is once again down and is now at 2.7%. The world coverage rate is stable at 50%. For 2022 and despite the quality of our portfolio, we reiterate the existing guidance in terms of cost of risk between 30 and 35 basis points to maintain the closest approach in terms of provisioning. Looking at the next page, Slide 9. You can see that the cost of risk in Q3 is largely composed of precautionary provisions booked on Stage 1 and Stage 2 assets that account for 66% of the total cost of risk in Q3. The start-up provisions on the posting assets have been further increased over the quarter and which is now EUR 3.8 billion, which represents almost 3x the provisions on Stage 3 assets in 2019. Overall, the forecast is very limited and the related cost of risk remains very low at around 10 basis points. Let's now turn to capital and liquidity. Slide 10. The capital ratio of the group has improved by 13 basis points in Q3 and benefit from higher IFRS in line with the increase in Stage 1, Stage 2 provisions. It land at 13.1% at the end of September. The buffer over EBITDA is around 380 basis points. This increase in capital monthly results from a strong quarterly organic capital generation of 14 basis points, and to a lesser extent, from the group employee ownership program, which generated around 6 basis points. These positive impacts have more than compensated cost the negative impact of 6 basis points due to the continued trade widening of sovereign debt and a 3 basis point impact on other prices. Note that we expect the impact related to TRIM and IRB repair to be postponed in the coming quarters between Q4 and 2023. Overall, the group can leverage on a solid balance sheet with all ratios can put to be above requirements. Note that the 2022 funding program for the year is now achieved. I will not comment on Slide 11. And let's look now at business performance and start with the French retail activities, Slide 13. The momentum remained overall satisfactory this quarter in France despite more challenging environment, especially on home loan market due to the impact on production of the still low level of the usury rate. In detail, deposits increased by 1.5%, that is Q3 last year, notably driven by regulated savings. And regarding loans, the total outstanding continued to grow in Q3 by 3.7% versus last year, notably to a 4% growth in corporate loans. The growth loans -- home loans outstanding is increasing by 3.5%. It's consistent with a voluntary selective approach in production we started a few months ago to limit the impact of the repricing lag effect due to the usury rate. On savings and despite the volatile market environment, we experienced resilient license outstanding and private banking assets under management. In line -- gross inflows amounted to EUR 1.8 billion. And in private banking, net inflow totaled EUR 1.3 billion in the quarter. We overperformed the banking France market. Finally, premia in personal protection continued to rise by 8% in Q3 [indiscernible] were up by 4% in the quarter. When it comes to Boursorama, Slide 14, we successfully ended the integration of ING clients in a short period of time with a 2/3 onboarding rate. Overall, 315,000 clients have joined Boursorama and transferred around EUR 8.5 billion of savings. They are mostly composed of affluent profile. In the meantime, Boursorama continues to acquire around 100,000 new clients per month organically at a marginal cost, which is continuously decreasing. Overall, Boursorama was once again this quarter strong value growth with 365,000 new clients and now reaching 4.3 million clients totally. In the meantime, Boursorama continues to progress in monetization with a good growth in both banking assets and savings. Loans outstanding are up 21% year-on-year at EUR 15 billion despite the voluntary flow home loans production in Q3. And regarding deposits, they are up by 37% and financial savings by 24%. To continue on Boursorama, we also wanted to point out the continued growth in day-to-day banking operations with, for instance, a 45% growth in payments and with growth. it illustrates that contrary to several Fintechs, Boursorama is a real bank, which is used as primary bank by a high percentage of its clients. In [indiscernible] Slide 15, despite the anticipated pressure on the net interest margin due to the specificities of the French market, revenues are resilient in Q3. They are up 5% versus Q3 last year, notably due to strong commission. In retail, net interest margin at other is down by 4.5%, mostly due to the impact of the increase in the regulated savings rate and the lag effect on home loans repricing. And on the contrary, fees increased by 6.5% with strong growth in service fees and resilient level in financial fees. Regarding in dollar income, they are moderately up by 2.2%, which illustrates the continued efforts made on the cost base. This increase in cost is indeed mostly due to the increase in the SRF contribution, variable costs and client acquisition costs. Factoring a prudent approach on Stage 1, Stage 2 provisioning as indicated by [indiscernible] come at 9.4% and 10.9%, excluding Boursorama. Let's now turn to International Retail Banking, Slide 16. Business dynamics remain solid in most regions. In Europe, low savings is up by 6% with an increase across geographies and client segments at constant perimeter and ForEx rate. The situation is more mixed for deposits, which are up in Romania and Western Europe, down in Czech Republic due to shift towards financial savings. In Africa, we continue to see a very good momentum both in loan and deposit outstanding, respectively, up by 7% and 6% at constant perimeter and ForEx rates. Overall, our international retail activities posted unrest of strong revenues, which are up 15% in Europe notably due to, once again, a double-digit growth of the net interest margin in contract with the French market. In Africa, revenues up at 10% at constant perimeter and ForEx rates on the back of strong commission. In Insurance and Financial Services on Slide 17, it continues to perform very well with an -- of EUR 966 million, which is up by 14% versus Q3 last year at constant perimeter and ForEx rate. On Insurance first, revenue up at 2% at constant perimeter and ForEx rate. Total life in rent outstanding are resilient at EUR 130 billion, with a unit link still high at 35%. In terms of production, net inflows in life insurance stands at EUR 1.7 billion in the beginning of the year. We see this quarter a good momentum in savings partnership in France with double-digit growth. Protection increased by 3% compared to Q3 last year, notably in PSC premiums, which are up 6% compared to last year. On Financial Services, they keep on delivering very positive results with a 14% growth in revenue at constant interest rate. We continue to benefit from the solid momentum of ALD. We have had a very strong quarter. The selling fleet is still growing well at 5.2% growth versus last year. And -- and ForEx rate, NBI is up 24%, notably on the back of growth in margin and we're still a very favorable remarking environment with the use case results around EUR 3,149 per unit in 9 months and EUR 3,014 in Q3. To a more into extent, higher inflation with dealing in Turkey has a slight positive impact for about EUR 20 million in Q3. To - IBF performed well again this quarter of Slide 18. Revenues are up 14% at constant perimeter and ForEx rate. The are positive despite the accounting of -- of charges relating to the acquisition of this Strictly on these specific elements, the increase is to a mid-single-digit number despite high inflation, notably in Eastern Europe. Overall, the gross operating income is up 16% at constant perimeter and ForEx rate. And the underlying return on normative equity reaching 23% net income above EUR 600 million. Turning to GMIS, Slide 19. Total revenues are up 11% versus Q3 last year, with a continued solid contribution of market activities, with revenues are up 12% versus last year at about EUR 3 billion. This is the best third quarter since 2016 and the best 9 months since 2019 at EUR 4.6 billion. Equity is performed well given the pure supported by sustained demand, both in flow and investment solutions. NBI is up plus 1% compared to strong Q3 last year. On fixed income, we are still benefiting from a favorable environment to our business mix. As a result, we posted once again a very strong performance across products. Thanks to organic commercial activity. Overall, revenues are up 34%. Financing and advisory, Slide 20, also delivered in Q3, a robust but with revenue up by 7% versus last year at EUR 807 million. In Global Banking & Advisory, dynamic remained strong in asset presence and natural resources, notably driven by strong demand to find the ESG transition. The activity was resilient in banking product. And on the core with peer investment banking have been severally elected by the significant decrease in volumes in capital market. In transaction banking, government was excellent across all activities of reinstating revenue growth of 50% compared to last year, notably thanks to cash management and cost on banking. They totally validate the investments undertaken in this activity over the last year. Overall, TBI, like delivered a very good quarter with positive -- This is driven by solid revenue growth of more than 6%, coupled with a strong cost discipline. In Q3, TBI delivers under -- close to 13% this quarter and above 16% exclude the rest. On the corporate sector, on Slide 22, operating expenses include as usual transformation charges for a total amount of EUR 160 million this quarter, mainly on Vision 2025. I will hand the floor to Frederic for the conclusion.

Well, thank you very much, Claire, and for the effort, and we try to preserve your voice as much as possible during the Q&A. A few words of conclusion. Clearly, again, a very good set of numbers following the previous quarters that gives us confidence to carry on and deliver good performances and accompany our clients. While being, of course, realistic, the environment is contract is particularly uncertain and next year, we will have to see how things are developing both from a geopolitical economy and financial point of view. That means we will keep until the end of this year, a conservative approach, in particular, in provisioning, the idea to enter 2023 with the maximum level of returns. . At the same time, priority also is to pursue our strategic projects. They are moving ahead well, and we are confident to effectively achieve some critical milestones in the end of this year and in the first half, which will, of course, help to build the future of the bank. And last word, of course, the Board has appointed -- the next at the next Annual General Meeting. Of course, the objective also during this coming month is to ensure a smooth and orderly transition and I'm very confident about this. We know each other, we've done very well. And we are coordinating very efficiently currently. That's what I wanted to say, and we are now open for your questions. I suggest, again, 2 questions per person, if possible.

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

And well done on the results today. I have 2 key questions really. The first is regarding the French Retail Banking revenues. The surprise positively this quarter and especially the French NII, which is up versus Q2 despite delivery rate hike. So the question here is really, should we consider that the French NII reached the trough in Q2? And what is Q3 NII number clean? Or was there any one-off linked, for example, to the TLTRO accounting? The second question is regarding the capital ratio. There, again, it comes up stronger than expected. So you're now at 13.1%. But we know there's 40 basis points coming from LeasePlan acquisition. There's still 30 basis points, I think, coming from TRIM. So actually, pro forma of these elements, you are at 12.4%. You need to get towards 13% thinking about the Basel IV impact in '25. So in other words, you're going to need to build 60 basis points of organic capital in the next 2 years. So anything you can tell us here on your conviction that you can get there?

Hello, Flora. I will let Sebastien comment on the net interest income for the French network. And I will take your question on the Again, I am trying to preserve as much as possible Claire. But you can complement if you -- look at just this quarter, we have created 16 basis points, 13 basis points, 14 basis points of organic capital with the results and, of course, taking into account the reserve for distribution. And here, you talk about 60 basis points on the pro forma for the next 2 years. We remain confident about the capacity to share an uncertain environment in 2023 and beyond. And yes, let me keep in mind, in 2024 for the will get the benefit of our strategic projects, the merger of the French network. We don't have yet the synergies on the cost on the spend, it's the same. So we will have also drivers to help in cost-income ratio. And very importantly, in terms of cost of risk, and that's why we will remain conservative. We have very strong buffers if for any reason, the cost of risk was to deteriorate with an environment which will be very, very challenging. At this stage, as I've said, the portfolio is improving. 2.7% NPL ratio. So yes, we are very confident to be able to build this kind of organic growth capital generation in the coming 2 years. Sebastien, on the France retail.

Yes. So as you said, regarding net interest margin is -- it's down compared to last year, but up compared to last quarter Q2. And keeping in mind that there is no significant one-off in the French retail revenues this quarter. So that's the first answer to your question. And regarding the evolution of net interest margin, obviously, it remains under pressure because the French market is clearly specific compared to other countries and all of it by half between the increase in interest rates on the delivery which costs around EUR 50 million, each 25 bps of increase. And also another point which is nearly different from other countries is the usual rate which weighs on the margin for home loan and to a lesser extent, on consumer credit. So all of this will last a little bit in the coming quarters. But -- and it means that on the French market, it takes more time than in other countries to have a strong and positive impact of higher interest rates on the net interest margin. It's really materialized, obviously, but a little bit of you.

And on the TLTRO, there was nothing in the first quarter year. Last year, there was [indiscernible]

There was a base effect last year in terms of TITO revenues This quarter, slightly down compared to Q3 2021. So again, no specific significant one-off.

Next question from Delphine Lee from JPMorgan.

So my first question would be going back to net interest income. If you don't mind just sharing with us a little bit, again, your interest rate activity. And I think to recall that a lot of it is actually short term rather than long term. So does that mean that you have started to take some impact? Or when should we that and have not been visible because of there and the user rates? Or when should we start to see a bit more momentum on net interest income from that repricing? So if you could elaborate a little bit on the outlook for NII based on that sensitivity. And then my second question is on asset quality. So you've briefed up a little bit your overlay, I mean, Stage 1, Stage 2 provisions in a way -- Just wondering, in your scenario, in a recession, more pervasive -- recession scenario, where do you think cost of risk could go to -- compared to your 30, 35 basis points current level?

Delphine, I will -- Claire answering your first question, and then I will turn to Sadia -- our CRO, for your second one.

So regarding your question on net interest margin sensitivity, first, in Eastern Europe, as you see, the net interest margin is up, and we are in a position to capture immediately as the benefits of the increase in interest rates. On the French market, it's slightly different. As Sebastien just explained, the net interest margin is structurally and pressure in an increasing interest rate environment, considering the fact that we have this delivery issue and also the lag effect on the repricing of the credit. This being said, we should be in a position to capture the benefit of the increase on the deposit side. But considering the fact that we have first medium long-term ALM position considering the fixed rate and medium-term balance sheet in France; and second, a low-risk capital hedging policies, we do not capture immediately these benefits. So we have more than, at least, in average, EUR 2 lag effect in our capability to capture the full effect of this benefit. So we could -- we should be in a position to capture it at the beginning of 2024 on the deposit side. Did I answer your question? And were you in a position to hear me because I understand that.

Yes, I think it was clear. Sadia, on the kind of level of cost of risk.

Yes. So I think it's premature to give any estimate of the cost of risk at this stage for 2023. We will see where we stand by the end of the year. What we can say at this stage is that, indeed, the asset portfolio is very well diversified and authority as we see from the resilience of the portfolio and that is illustrated this quarter again, by the very low cost of rate -- the nonperforming loans, which stand at 10 basis points. I would highlight as well that our risk profile has improved over the last year, and the origination criteria has remained strict with particular retention given to collateral and to avoid concentration risk. And finally, as you see the amount of provision in terms of S1, S2 assets have been further increased at EUR 3.8 billion of roles. We will continue to have this certain provisioning over Q4, as Frederic mentioned, and that should protect our books where the environment to deteriorate. So we continue to run various scenarios, including the deterioration and recession scenario. Because of the resilience of the books and the amount of overlays that we have, we are confident to address this in 2023.

And if I may, more generally, I think we want to stick to the same policy we should have beginning of the next year after having completed the budget process and hopefully having a little bit better visibility on the economic environment, on the monetary policy, we should be able to give you a little bit more clarity on certain guidances for the year to come. But you can see confidence in the quality of the portfolio, but we prefer to wait a little bit before giving a more precise perspective for 2023.

Next question from Jacques-Henri Gaulard from Kepler Cheuvreux.

I had one on asset quality, but you already answered comprehensively. So I understand you're really confident. I missed the amount of overlay provision the stock. If you can just remind that for me, it went -- So the only question I have left is really on the dividend at that point. Your provision on the underlying, right, I guess. How confident are you that the ECB is not going to lead you into a problem because you have this Russian provision at the end of Q2? That's the only question.

Yes. Jacques-Henri, first of all, the amount of S1, S2 stands at EUR 3.75 billion roughly. So it's above the peak of the COVID. And I'm happy if you wish to further complement it. I don't expect I must say, an increase of default at your end and so to enter with the maximum of buffer in 2023. Regarding the distribution, well, we -- now we have been provisioning with an underlying basis in terms of distribution, which means EUR 2.38 per amount. And we have a provision for that, and the core Tier 1 stands at a good level. So I think the ECB is going to look for all banks at the capacity to, of course, far perhaps a more uncertain environment. But at this stage, with the kind of buffer we have, I have no concern, and we will make this final decision at year-end as usual, like we did in the previous years. But for the time being, we have provisioned under the system, as I said, EUR 2.38 per share.

Next question from Giulia Aurora Miotto from Morgan Stanley.

Can I just go back to the NII in French retail. I want to clarify a couple of maybe technical points. So TLTRO -- so first of all, are you planning to repay, when? And if you repay will this affect how much the TLTRO is booked in your quarterly revenues? My understanding is that you have spread it over 3 years. And so actually, the impact should be smoother and we should still see some benefit over the next years, but I just want to check that my understanding is correct. And on this note, some other banks, for example, are indicating that they're going to take some hit because of hedges because they need to unwind the hedges on TLTRO. So is some seen any such impact? And always on French retail NII, so if I am not mistaken, could go up to 3.5%, 4% next year. So that will be a further negative impact. And from what I can see, the French market is having negative mortgage margins. So -- what is the driver for NII uplift next year? Is it badly loan growth and reserves at ECB? Or what are we missing on this dynamic? Yes. These will be my questions all NII infrastructure, please?

Yes. Giulia, I would let both Claire answering more precisely on the TLTRO. And again, Sebastien coming back on the different bits and pieces which can influence and again, a lot of that is depending also on what kind of rate, what kind of inflation we will have going forward, if you wish to, there are different elements. So can I just make one comment on the TLTRO because -- I personally consider the recent decision by the bank as a disturbing one, if I may, because -- of course, beyond the financial impact, I think has been reviewed at if you wish the TLTRO, which was used for us to land in the midterm and not just short term. And of course, price is an issue. So from metrology point of view, we would have been certainly more comfortable a process of the kind of negative tiering. So I regret it. Now, the consequences. We are still assessing the consequences. And on the question on the TLTRO, can you elaborate, Claire?

Yes. So -- there were a lot of questions in your questions, so I will try not to forgetting. First question, how did we account the NBI on this TLTRO So we did a count it in a very cautious way from my point of view, which we did, of course, we accrue a TLTRO benefit on an accrual basis. It's according to accounting principle with an average rate and to assess this average rate over the TLTRO, of course, computed the past period. And going forward, we took an assumption regarding the DFR for the rest of the period of time. So this is the way we did account in the first benefit, which is, as you know, which will be a reality until November '23. So it's a conservative approach, which in line with the way our auditors requested to account. Second question, do we intend to remove. So we are currently assessing this topic. The benefit From the TLTRO doesn't exist anymore because we don't have any more prime in the remuneration. So we are currently assessing whether we will remove feet and then use the collateral to get more less expensive liquidity or maybe we will keep it. So we are currently accessing the decision and the -- should we decide to remove for the reasons I explained, which is we will use the benefit of the collateral for better purposes, then we will use the year -- the new dates that have been put in place. Last question about the hedging. So we have quite a conservative approach regarding risk management. We have huge risk capital regarding interest rate. So we have globally kind of holistic approach regarding our interest rate hedging policy. And then we will have to adapt our interest rate management in November. Please keep in mind the fact that we are in line with some LPs to communicate on their impact. We have EUR 72 billion outstanding in TLTRO. So we'll align what some other peers may communicate.

Thank you, Claire. And Sebastien?

Yes. Yes, Giulia, as I said earlier, some key elements, which are weighing on the net interest margin will last in the coming quarters. You pointed out the way of evolution in the coming months. I think it's fair to say that we could expect another increase in February based on the formula applied by the French regulator and Minister of Finance. So it depends, obviously, on the evolution of weight and inflation, but I mean something around 3% is possible. And regarding credit production, again, there is a lag effect, which prevents the market from the quick repricing credit and especially as far as the home loan are concerned because of the rate, so mechanism, which is clearly specific on the French market. So having said that, it's fair to say that this pressure will last before having the full impact -- full positive impact of the net of the increase in interest rates on the net interest margin. It takes longer than in other countries.

Next question from Jon Peace from Credit Suisse.

Could I ask 2 questions, please, about your 2025 plan. So firstly, it was very conservative in that it assumes 0 ECB short rates. Based on today's curve, I mean, how would you think about that now? Some of your peers have given a figure in terms of additional NII that they might recognize versus the 2021 run rate? Or how would you consider that 3% revenue CAGR with today's interest rate outlook? And then on the flip side, I guess, inflation is probably already -- also surprised on the upside versus when you first laid out the plan. You had a 52% cost income target for 2025 rather than a cost CAGR. How about that with the net impact of higher rates and higher inflation?

Jon, we basically have not made this precise calculation. You're right to say we have taken a relatively conservative scenario in terms of rate, and that remains -- right? Maybe a bit difficult when we see the level of inflation, level of interest rates to imagine that rates could go down, I would say, end of 2023, beginning of 2024, with a normalization of the inflation related also to a slowdown of the economy, but that remains our central scenario. They are obviously on the scenarios. But if I may say, taking that conservative scenario gives effectively buffer in terms of revenues. In terms of cost, let me highlight, first of all, we have been able, I think, to monitor where the cost is reflected in 2022. We will have the benefits of the different strategic projects. And if I may, we have a little bit of visibility on, for example, the wages in France. We have signed an agreement to give you a figure, remind you figures. First, we will pay a lump sum, which we actually provisioned in the fourth quarter of EUR [ 1,030 ] million for people, I think, below EUR 80 in terms of fixed salary, any it's a specific mechanism and it will not weigh in 2023 onwards. It's more a 2022 impact. And then a 3% increase for salaries up to EUR 60,000 and a 2% increase between EUR 60,000 and EUR 80,000. That's for the general increase. On top of that, we will have also some individual increase. But if I may, as you can see something where we remain disciplined, given an inflation rate, which might stand at roughly, we'd say, 6% in France at year end. It's a little bit the same elsewhere, and we try to, of course, monitor as well as possible the So I think you can carry on with the objective. We are not reviewing these objectives. It's a long-term objective. But we think we have a margin of man very, if you wish to comply with this objective.

Next question from Tarik El Mejjad from Bank of America.

I'll just switch gears from first retail to maybe the CIB. You had a good performance from a very high base already. How should we think about next year? And especially in the equities and fixed income where clearly you have restructured and stabilized the revenues, but it's quite a high level. So any outlook there? And then on the ALDs plan, why this has been delayed by a quarter for the closure? Is it just because of the rights issue? Or maybe you can give us an update on how the approvals in each country are ongoing?

Tarik, I will turn to Slawomir on your first question and then -- on your second one. Slawomir?

Thank you for your question. Listen, the easiest way I talk about just to refer to our -- the guidance at the long-term guidance that we gave in August of a level of 4.7% to 5.3% in terms of revenues, in -- across the cycle, right, and the variability being linked to, obviously, the question of how conducive the market conditions are a particular quarter or a particular year. So right now, you see -- I mean, the maths are there, we would probably most likely exceed this top range of the guidance this year, given where we are in -- on the 9-month mark, but we had a year which was particularly conducive for our mix. Of course, we have done a good job, right? If you compare our performance to our peers, you can definitely say that we have done a decent job, but we have had market conditions which work and due to what we do and to a particular business mix. So I mean, that's how I think about the guidance for next year. If you have volatility trends needs for hedging your commercial or industrial value chain risks for our corporate clients and no major dislocation like this year, we should expect something towards the upper range, upper, upper, yes, side of the range. And if the markets are either much calmer or go through a bigger dislocations, you should expect us to be closer to the low range. But the range itself, I think, is still relevant.

Thank you.

Hello. Thank you for the question. Well, overall, the project is progressing quite well and in line with our plan in terms of preparation. Just to remind you, we have conditions to receive regulatory approval first from the ECB to become a financial holding company and some related approvals. And then for various trust authorities. So while things are progressing quite well and we are overall confident in the process, some of the filings has been slightly delayed. Having said that, we believe that we are on track for a rights issue for year-end and then there are some technical delays for closing to happen in Q1. But overall, we are quite confident at least will progress in preparing this transaction.

Next question from Maria Silicate from Citigroup.

I don't know if you can hear me. Sorry, we apologies.

We can hear you, Maria, yes.

Two questions from us. One is on French retail. Can you give us some update on the integration process between the franchisees and the merger? And what do you expect for next year. The other one is on Boursorama. Could you share with us some profitability metrics at operating level, if it's possible? Or when are you planning to disclose the number?

Yes. Maria, well, I'll return to Sebastien on your first question and Philippe on your second question. Sebastien?

Yes, Maria, so the merger is progressing according to plan with legal merger, which is confirmed for January 1. And an IT merger divided into 2 waves of migration, which will take place in March and May 2023 before having the operational merger, which will start after January and between 2023, 2025. So in 2023, only 1 headquarter by the merger, the effective merger of the 2 headquarters of Credit and Societe Generale at central level and in the regions, and we would start in H2 2023 to merge branches on the ground also with the objective to have 80% of the cost synergies secured before the end of 2024.

Philippe, on Boursorama?

Yes. On Boursorama, don't share financial metrics, but I can remind you the targets for -- which were communicated in last August. Targets, net result of EUR 100 million net profit in 2024, EUR 200 million in 2025 with return on equity in 2025, above 25%. From an operating standpoint, they are really 2 metrics that we are monitoring very precisely and carefully. The first one is the acquisition cost. And it has been divided by year 2 since 2016, and it's also down by 30% since 2021. So it demonstrates the efficiency, I would say, of the marketing tools of Boursorama. And the second key criteria for us is the new client payback. And it has also been significantly short term for 2 reasons. The first one is, of course, the decrease of the acquisition cost. And the second one is higher revenues generated per client. So again, we strongly believe that this customer base has a lot of value and that we have the capacity to sell to these clients many products and services.

Next question from Stefan-Michael Stalmann from Autonomous.

I have 2 questions on the topic of French home loans, please. The first question is that if I look at the user law constraints, user law seem to allow for much higher interest rates than what the banks are actually currently charging on new business, and that has been true for most of the year. Why do you think that is? And the second question is, if you look at your new home loan business year-to-date, and the way that you fund it, has this been positive from an NII perspective for you or negative? .

Stefan, keep in mind the usual rate not just include rates, and it's the full cost now with the insurance, the brokerage cost. So it's a total amount and which leaves limited actual space for rates. The rates that sales have been increasing, but we've clearly constraint. It is likely that we will see a further increase at year-end because second time effect, the time lag in the way it's calculated. So to come back to all the comments we made, this year, there has been a time lag and there was -- we will have a time line. The question for next year is are we going to have a stabilization of the interest rate or not et cetera. And that means also if you wish, give us more or less margin of maneuver in terms of the pricing adequately, if I may say, the home loans. And there is a second point, yes, NII, it was negative. I think we've commented, Sebastien.

Yes, yes. So on your first point, just keeping in mind that between Q2 and Q3, the increase in the usual rate was 17 bps, 1-7. And the increase in rates, if we take the swap 10 years, it was plus 100 bps. So it clearly shows the difference and consequences. And regarding margins on home loans, it's -- yes, it's a negative impact. And that's why we have decided to cut the production of home loan quite significantly between -- I mean, since Q2 2022 to protect our margins. And that's the reason why we have decided to be very selective and to grant home loans to our clients, and we decided to stop using brokerage and third-party -- third parties in the home loan process.

Next question from Amit Goel from Barclays.

Maybe just coming back, I suppose, on NII. I know there's been a lot of questions asked. But I'm just really trying to get a sense of, I guess, how much pressure that could be in the coming periods from the various effects that you've highlighted before you kind of start to see that positive contribution coming through in '24? So just really trying to size that. And then I guess, with a bit of pressure there, what you're thinking about the cost ratio into next year and whether you think you would be able to achieve a similar level to the kind of target for this year?

Amit, I understand again. But as I said, we will be able, I think, to give more clarity beginning of next year. There are some parameters which can play a role. As we've said, I can just repeat what we've said. We -- and it's inline very much with what Claire was saying, a benefit -- full benefit after 2 years. So the increase of interest rates fundamentally started mid-2022. You take 2 years, it's mid-2024. Meanwhile, meanwhile, there is, again, the specificity of the French market with -- which react immediately negatively on the NII and the usury rate, which growth step by step between the time line. And so as I said, we will have probably a further increase at but then we will have to see also how the rate develops going forward. And on top of that, with the hedging policy that we are saying we need to wait a little bit to see the benefit of interest rate. We can't give you more figures. If you wish, we need to finish the purchase process, have a clear understanding of the volumes we have in mind, both on deposits and loans to give any more precise figure. And we will have hopefully a better view also on the interest rate environment in 2 or 3 months' time, we see whether Central Banks have the are pursuing the increase of interest rate on the contrary stabilizing given the fact that they see already a significant impact on the economy. So -- sorry about this. I think we can't say more than qualitative elements. .

Next question is from Pierre Chedeville from CM-CIC Securities.

Regarding Africa, I was quite surprised by the rebound you mentioned considering the current geopolitical and economic environment, I wanted to know how do you see things coming in 2023. Is it a structural rebound? Or is it a conjunctural rebound due to a favorable comparable basis, for instance? How do you see the evolution in Africa because we know that Africa may be it a little bit more than our continent due to the situation? And my second question is relates to the consumer credit. We know that you don't talk about consumer credit, but you have quite a significant outstanding there. And I was wondering how you see evolving. I see that in this quarter, revenues are decreasing in Western Europe, which is mostly consumer credit. But also in France with how do you see think regarding the cost of risk and also the scoring?

Yes. Yes. I will turn to Philippe Aymerich, who will comment on both topics.

Thanks for the question. Regarding Africa, maybe 3 comments. The first one is that -- yes, the environment is complicated, but it has improved since May. And so there are still some people, investors who are in a kind of wait-and-see mode. But we have also identified and seen a clear rebound of the activity notably with corporates. So we are speaking about short-term financing. We are speaking about ForEx, straight finance and even a rebound on the medium-term loans. And my comment is related to the countries where we operate and notably sun the country. So that's my first comment. The second one is that keep in mind that we have in this region, very solid franchises with leadership positions. And that definitely, we have been able to capture this positive momentum, notably taking advantage of all the synergies. We are still between Africa and the rest of the group. So that's the second part of the comment. And the third comment is that I would say that our hard work is paying off. As you know, during the last years, we have restructured or set up. We have focused the resources on countries. We have started the digital transformation. We have launched key initiatives to structure and to mutualize IT and operations. And finally, we have also implemented a very strict cost discipline and credit risk origination. So all this combined, I think that is for us in Africa, a very interesting momentum. And of course, we will continue our efforts and make sure that we are able to capture this growth. And again, in the countries, we have selected in the countries where we operate. Regarding the second point regarding consumer finance. Yes, that's true that the production has been a decrease during this quarter. As you know, a big part of the position is related to car finance and the market is quite slow. We have also been quite -- regarding repricing. We want to make sure that we operate with good prices. Well, we said the results are still quite good with return on equity, which is still very satisfactory. And we are being as quality. Frankly, we see absolutely no sign of deterioration for the time being. Of course, this is a very tightly monitor. But for the time being, it's still under control. So to make it short, a weak quarter but still a very good franchise and very profitable franchise for the group.

Next question from Chris Hallam from Goldman Sachs.

Just 2 questions, one on capital and one on leasing. So just first on capital, a quick confirmation on TRIM. I may have missed, I may have missed this in the answer to Floris question earlier. But are you still expecting 30 basis points impact from TRIM? And should we assume that split across Q4 and Q1? So that's my first question. And then in Financial Services, you spoke to the strength of ALD in your prepared remarks. And I just wondered if you have a view on the degree to which ALD is sort of over earning currently from a residual value perspective? Used car indices have obviously fallen quite a bit, but is still around 40% above pre-pandemic levels. And I think the MW to EUR 1,500 residual premium per vehicle yesterday on their call. So I just wondered if you could help me understand how that dynamic should normalize through, I suppose, 2023? And what assumptions should embed in revenue forecasts?

Yes. Chris, first of all, yes, TRIM is going to be around 30 basis points.

Yes. Yes, it's 30 basis points. And it will take place between Q4 and end of 2023. So we expect now for Q4 between 10 and 20 basis points, the rest for 2023.

[indiscernible]

Yes. Well, as you know, the used car sales have been quite high and supported by limited supply of used cars over the last quarters. We expect this to continue in the coming quarters, taking into account the reduction of sales the last 2 years. As you know, this quarter, our car sales results remain quite high. We are at over 3,100 for the 9 months, which is a record high. It's also due to quite prudent policy in terms of provisioning for residual values. So again, quite supportive market, which should continue still taking into account that this is really at a record high level.

Next question from Kiri Vijayarajah from HSBC.

A couple of questions, if I may. So firstly, I wonder if you could just get your latest views in terms of the risk of a new -- a windfall taxes. Do you think you're fairly safe now in France? Or if you actually keep showing improved profitability like this, is there a risk or still lingering that in the back of your mind with regards to windfall taxes in France for banks? And then specifically on the ING customer base that's been migrated over, once we look through the upfront customer acquisition costs, any other noise, are you able now to give us a bit more in terms of the recurring revenues, recurring costs that we need to factor in for, say, 2023 or 2024?

Kiri, listen, on Boursorama, really, I think the best answer is what Philippe said on the guidance and effective need to turn into profitability as we said around EUR 100 million in 2024 and EUR 200 million in 2025. Getting offer the full benefit of this migration of clients with good level of deposits and good level of activity overall. So I don't think we can give at this stage more. And listen, in France, well, we've been commenting on the French market, just as an extent. As you can see, clearly, consumers are protected in this market, and we do not benefit immediately for the increase of interest rates. So I don't expect any specific tax on the banks in France compared with other markets where probably you can see more, obviously, some immediate impact in terms of profitability in France. The debate is more on energy companies and that remains certainly the center of attention for potentially the government, but not the banking sector at this stage.

Next question from Matthew Clark from Mediobanca.

I'm afraid my questions are also on net interest income. Apologies for that. So I just want to try and understand the sequential TLTRO impact in French retail and elsewhere. I mean, am I right to think that you must have had a more favorable impact in Q3 versus Q2 as the ECB deposit rates started rising, and the amount that you're budgeting to pay for the TLTRO didn't change too much because of the averaging calculation. So am I right to think there was a bit of a tailwind, third quarter and the second quarter. And then did I understand right from your comments around same impact appears that we should be wary there might be some hedging loss taken in the fourth quarter? And then my second question is just on your overall interest rate sensitivity that you give in your registration document, which I think is something like EUR 150 million per 10 basis points. I mean, obviously, we've seen much larger moves from 10 basis points. So I just want to understand whether you stick to guidance? And whether -- that scales to move about 100 basis points or more, if we think about it that way? And also that we should expect the deposit tailwind that you talk about in 2024 to continue for several years after that. I mean it seems that you have a longer duration structural hedge or replicating portfolio. And so really, 2024 should still be only the start of the benefit that you get from the gradual repricing of your balance sheet?

Matthew, first, if I may, yes, a slight improvement in site increase of the benefit of the TLTRO from Q2 to Q3. Second, in terms of adding, again, the portfolio is hedged globally. So it's not a bit premature to comment on this. And it's not clear that we will have effectively any impact. We have to work on that, and see what it means effectively. But yes, there is this component, which normally should be out of the hedging, if I may say because of the decision of the Central Bank. So we have to see how it been. And third, again, yes, we have been hedging policy. The sensitivity, I'm a bit surprised by your figure because for me, it's more around EUR 80 million for an increase of 10 basis points in 2 years' time. A very mechanical calculation on the static balance sheet with the curve moving up short and long, that's the kind of sensitivity. That's not for the French retail as a whole. It's for the whole group. So you have a significant portion of the French retail, but not just on the French retail. . And again, yes, the policy means that there is some kind of progressive evolution. As we said, 2024 will be more dynamic, clearly, if you stay with the same kind of rate. And as I said, also be careful because depending on the -- I don't think for granted that you will necessarily have a stable genres we see today, in 2 years' time. as I said, our French scenario is a decrease of also short-term rate. That's where there are so many parameters which play a role. It's a little bit, I think, in my view, premature and a bit imprudent, I think, to give the figures in 2 years' time, depending on the scenario.

Next question from Anke Reingen from RBC Capital Markets.

The first is, I think Amit asked this before, but I must have missed the -- In terms of going into 2023, given you're more somewhat more quarters or not so certain impact of higher rates. If we look at the costs and inflation is certainly going up, is there any room for you to accelerate or to initiate any additional actions on costs? And then secondly, just in terms of the management change, obviously, it's some time to go, how does the -- overall work impacts? I mean is there a risk that no big decisions are taken.

Anke, listen, on the French retail, I've given you the content of the agreement in terms of wages. So that give you a flavor of the kind of cost increase we could have on wages. After that, we make our first all our efforts to make savings, but it's fair to say. The benefit of the merger is in 2024, 2025, is difficult to anticipate it frank, but it will be there. In terms of the change, listen, we are working exactly in the same way. And as a management team, a college and -- he's currently Head of Wholesale. He is part of the management team, and we share with an sharing, for example, typically for the appointment of a new CRO, it was a procedural process. I think, yes, you could not -- I don't know what a big test just in mind before the 23rd of May, but it will be a bit forward to take big decisions. The idea, again, is to complement the road map, the very short-term road map on the project. And then -- is getting ready to take over on exactly the 24th of May, and carry on. But I don't know what kind of a big decision you have in mind. But honestly, the idea is to carry on focusing on what we have just communicated and was part of the management team, and we'll be very focused on these elements. So that work very smoothly. And again, these months are good to close this cycle, if I may say, and to enable prepare fully to take over without using any time.

Next question from Guillaume Tiberghien from Exane.

It's actually on capital. I wanted -- I've got 3 subsections. One is, can you confirm whether what has been agreed so far on the increase in countercyclical buffer will cost you about 50 bps on your NDA. Secondly, if a countercyclical buffer continues to rise in a number of countries, how confident are you that 12% equity Tier 1 is actually enough for you? And thirdly, your 120 bps base for impact fully loaded, what is the rule for litigation that you can 100 [indiscernible].

Guillaume, I will leave Claire answering on the capital -- contract cyclical capital first. There might be some mitigation at this stage, it bit premature. And let me just remind you also we are disconsolidating the $120 million in probably better estimate for the real intensified impact will be the beyond the 2025. It is mature. We don't even know whether it would be applicable in 2025. At this stage, we stick to this figure. And there might be some adjustments, but it's probably better to take that into account. . On the contract technical buffer, what can we say, Claire?

Truly our EBITDA is at 9.27%. It would increase up to 9.75% by the end of 2023 based on an assumption of an increase in the French group the year 24 basis points. So we will have some we expect we wait some increases in the U.K. on the on the check side. on the Romanian side and so on and so forth. So the French countercyclical buffer be upgraded increased up to 50 basis points, then our NDA would reach 10%. So we have quite a conservative approach in our call trajectory. And as the said, we have some -- our capability to have room from a euro in the capital. So it's always the same levels such as well of portfolios more rate to distribute a very selective approach in addition in line with our strategy. So this is the main data in the main levels. .

Next and last question from Máté Nemes from UBS.

I have 2 questions left, please. The first one is on cost of risk. So you reiterated the 30, 35 basis point guidance for this year. But it's clear that the underlying cost of risk is significantly lower. I think you mentioned 10 basis points. Just for Q4 and perhaps the next 2, 3 quarters, should we expect that you keep putting in place additional Stage 1 and 2 provisions, i.e., overlays even if there's no real pickup in defaults? That's the first question. Second question is on Boursorama. The organic client acquisition, I think you mentioned was around 100,000. Could you elaborate whether you expect a similar pace in the next 2 to 3 quarters? And if you could comment on the cost of client acquisition, today versus a year ago.

Yes. And Máté, yes, listen, you see how generous I am with If yes, we can expect still have a low impact of default. I will effectively prepay out as well as other brand for 2023 and add additional -- too. I think it's prudent and it makes sense, with all the uncertainty still of this environment in 2023. So yes, it is very likely. Then on Boursorama, same thing is part of the budget process to see exactly what kind of pace of growth we want to have in 2023. Philippe, I think the cost of acquisition has gone down.

Yes, yes. Cost -- acquisition cost per client, as I said, has been reduced during the last year by 30%, 3-0. So it's quite significant. The more and more, if you wish, also the franchise grow. I mean, the more and more we have this capacity to reduce the cost of acquisition per client.

So are we done. Any other questions?

We have no more questions.

Okay. Well, thank you very much for your attention and your presence at this call. Have a very nice day. Thank you. See you soon. Bye-bye.

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