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

Ladies and gentlemen, welcome to the Societe Generale Group Second Quarter and Half Year 2023 Results Conference Call. Mr. Krupa, please go ahead.

Good morning, everyone. Thank you for joining this call. I'm very pleased to be with you today for the first time as CEO. And I would first like to take a moment to highlight how specific the exercise is today as this is the last set of earnings before fully moving on to the next chapter, that will start with our Capital Markets Day in September, which I hope you will attend in person or remotely. So before digging into the numbers, I would first address some of the key milestones that we reached this quarter. In the French region, first, the IT migration of the networks has been completed in May in very satisfactory conditions. And at the same time, Boursorama, in early July, reached the milestone of 5 million times. We have announced that we have signed agreements to sell 4 African subsidiaries. And obviously, the acquisition of LeasePlan by ALD was closed on May 22. Without further ado, if we dive into the numbers, we report an underlying group net income this quarter standing at EUR 1.2 billion and the reported net income at EUR 900 million, which are equivalent, respectively, to 7.6% and 5.6% ROTE. The underlying revenues are down 5% compared to Q2 '22. Reported revenues are down 9% due to a few one-offs related to legacy legal disputes. The underlying cost-income ratio, excluding SRF, reaches 65.8% for the quarter. And regarding cost of risk, the defaults remain limited and with no sign of material deterioration of asset quality. And in all, the cost of risk is at 12 basis points this quarter, Q2 '23. In terms of capital, the CET1 ratio lands at 13.1% post provision for distribution and these planned integrations, and it is now 330 basis points above requirements. The LCR ratio is strong at 152%, thanks to high liquidity reserves and despite a significant CST repayment last quarter. I now leave the floor to Claire for more details.

Thank you, Krupa. In Q2, the group delivered an underlying gross prorate income of EUR 2.1 billion. Revenues are down minus 5.4%, that is due to last year at group level on an underlying basis. At business levels, the revenue trend in France is in line with the guidance provided last quarter on the less interest margin, partly offset by a strong performance on Boursorama that is worth noting. For market activities, revenues are solid in a less conducive environment in Q2 last year. In all the businesses, revenues are robust, with solid contributions of IRB, ALD, and IFRS. It's worth noting the strong first contribution of around EUR 200 million from 22 of May to 30th of June. In addition, revenues of the corporate center are impacted by one-off items related to legacy legal disputes for a total amount of EUR 240 million. Overall, the underlying interest income ratio, excluding IFRS posted in Q2, is at 65.8% and 32.2% for the first semester. Let's now have a look at operating expenses, Slide 6. Total and dialing costs are stable versus last year at minus EUR 4.5 billion. In total, the contribution to the single regulation fund is down minus EUR 51 million versus last year. The change in parameter versus last year contributed to a net increase of EUR 71 million due to the integration of ALG, partly offset by a positive impact linked to the disposal of gross banks. Excluding these items, our underlying costs increased by only EUR 9 million last year. The test income ratio, excluding IFRS, increased to 65.8% in Q2, mostly due to the decrease in the net interest margin in French Retail and market reviews. Moving on to the next slide on the cost of risk, Slide 7. The cost of risk remains low across businesses in Q2. At group level, it stands on an average at 12 basis points. It illustrates once again the quality of our assets with still no material deterioration of our portfolio. The NPL ratio remains low at 2.9% at the end of June '23. Note that the gross coverage ratio is slightly down for technical reasons as we transferred in Stage 3, highly secure tied with low risk. Let's now turn to Slide 8. As just mentioned, defaults remained low in the second quarter at EUR 204 million or 14 basis points. At the same time, we maintained high revolutionary provisions on Stage 1 and 2 assets in Q2. At the end of June '23, the total outstanding of Stage 1 and 2 provisions amounted to EUR 3.7 billion, i.e., around 2.9x as Phase 3 cost of risk in '19. A few words now on the remaining Russia exposure, Slide 9. First, we successfully completed the disposal of the onshore legacy exposure with the disposal in April ELD Russia with an impact of minus EUR 79 million, accounting for the corporate center. The onshore is now limited to EUR 15 million following the integration of this growth. Moreover, the Russian offshore exposure is down 50% compared to the end of '21 at EUR 1.6 billion at the end of June, is highly diversified and secured. Indeed, the net exposure at risk remains below EUR 0.5 billion default provisioning, and this residual risk is covered by a total provision of around EUR 0.4 billion. Let's now turn to capital, Slide 10. At the end of June '23, the cost-income ratio lands at 13.1% by integration of LeasePlan, a 330 basis points above NDA. The fully loaded core Tier 1 ratio is 13%. In terms of moving parts, organic capital generation and distributable items is 10% at 35 basis points and minus 22 basis points, respectively, in Q2. Regulatory items have a total negative impact of 19 basis points, including IPC direction and M&A accounts for 36 basis points this quarter, following the closing of LeasePlan acquisition by ALD. For other capital and liquidity ratios, they are all comfortably above requirements. Moving on to liquidity, Slide 11. First, let's note that we have achieved 95% on the 2023 long-term funding program. The farming balance sheet of the group remains sound and solid with an excess of long-term resources, notably thanks to a strong and highly diversified deposit base, high liquidity reserves, and limited reliance on short-term funding. The rates mix of the liquidity profile has been further strengthened with, on the one hand, a further increase by 2.5% of the B2B, and on the other hand, the 2023 long-term funding program achieved at 95%. Overall, the loan-to-deposit ratio stands at 82% at group level. In addition, the LCL ratio remained strong at 152% after the repayment of EUR 14 billion of TLTRO in Q2. Note that the remaining outstanding will mainly mature in March and September 2024. It's also worth reminding that the group has excess liquidity in dollars deposited with the Fed. I will now come on Slide 12. So let's now turn to business performance, starting with the French network and Private Banking, Slide 14. On the credit side, the total loan outstanding is down minus 2% in Q2, with differentiated trends between retail and corporates. With corporates, the activity remains dynamic. Loans excluding PGE, are up plus 2.1% versus last year, driven by medium long-term loans. On state-guaranteed loans, outstanding has decreased from around EUR 18 billion at the end of 2020 to EUR 9.8 billion currently, down by minus 27% versus Q2 '22. On loans to individuals, we have applied a selective approach in production to limit the impact of the usual rate, which is translating into a decrease in production on a yearly basis. Home loan outstanding is down minus 2.8% versus last year. On the deposit side, total outstanding is down less than minus 3% compared with Q2 last year. The deposit base is increasing for households based down for large corporates. On savings, we experienced a growing AM. Life insurance outstanding is up plus 1%, with growth inflows amounting to EUR 2.1 billion. Private dating assets under management was up 5% with net inflows of EUR 2.9 billion, up 19% versus Q2 last year. Finally, Premia in P&C continued to grow dynamically in Q2. The uptake is by 9% versus last year. And on Personal Protection, Premia increased by 2% versus last year. Moving on to Boursorama, Slide 15. Boursorama is upping this quarter, the positive net income of EUR 47 million, equivalent to a RONE above 66%. The performance in Q2 is remarkable in many respects as it validates, almost 2 years ahead of schedule, the objective set in December 2020, with 5 million clients already reached, and annualized results of EUR 200 million. This outcome demonstrates the profitability comes as soon as we decide to reduce marketing intensity, which we did in Q2. It's all the more satisfying that Boursorama printed a net positive contribution while acquiring almost 130,000 new clients. On the commercial front, deposits and financial savings continued to increase significantly by 39% at EUR 53 billion, while loans remained stable due to a continuously selective approach in home loan production. Additionally, we still observe dynamic day-to-day banking operations with a 37% growth in activity versus Q2. Let's now come to quarterly P&L. The France Retail Banking activities generated a net profit of EUR 277 million in Q2. Total revenues, excluding P&L, are down minus 11% versus Q2 last year due to the headwinds on the net interest margin as guided last quarter. Conversely, still remains solid and are up plus 2.4% versus Q2 last year. Regarding costs, they remain under control and well below inflation. They are flat on an underlying basis compared to last year and are down by minus 3.2% on a reported basis, thanks to a EUR 60 million provision release that was incurred in Q2. Last, cost of Boursorama is contained at 18 basis points. Overall, the reported ROE came up 5% in Q2. On International Retail Banking, Slide 17, commercial dynamics remain strong across regions and segments. In Europe, loans outstanding are up 7% and deposits increased by 3% on a year-end basis. In Africa, the economic environment is supportive, notably for the corporate segment. Overall, loans grew by 6% versus Q2 last year and deposits increased by 5%. Overall, revenues are stable to IRB. They are slightly up in Europe this quarter compared to last year and increased more than 10% in Africa, which offsets the negative base effect linked to the sale of Rabun, whose contribution still amounted to EUR 51 million in Q2 last year. Overall, our international division posted another satisfactory performance this quarter with an ROE at 19%. On Insurance and Financial Services, Slide 18, the performance remained strong with an underlying RONE at 27%. And in France, the business activity is sound. Life interest outstanding is up 2% at EUR 133 million at the end of the quarter. On Protection, Premia increased by 5% versus last year, driven by a continued solid dynamic in P&C premia, which are up by 12% versus last year. Overall, revenue generated by the insurance division rose by 33% compared to Q2 '22. For Financial Services, revenues increased by 17% in Q2, thanks to a 19% rise for ALD, which benefited for around EUR 200 million additional revenues from Lisbon since closing on 22nd of May. At constant perimeter, excluding this from contribution in ALD Russia, ALD revenue remained robust, while slightly down versus not very high Q2 last year, which was positively impacted by a one-off effect in Turkey with hyperinflation. We continue to see a solid growth of the same fleet at 3% at constant perimeter and UCS results remain high at EUR 2,600 million per unit without a reduction in depreciation cost. To sum up Slide 19. IBFS delivered another strong quarter with a reported net income at EUR 587 million. Revenues increased by 6% compared to last year. Total underlying costs increased by 19%, mostly due to the impact of LeasePlan. Like the rest of the group, gross income remains low at 24 basis points. Overall, the RONE is close to 23% in Q2. Moving on to Global Markets & Investor Services. Total revenues are down minus 13% on Slide 20. Our Global Markets revenues remained solid at EUR 1.3 billion, there down minus 11% in less inducive market, that is a very high Q2 last year. In detail, equities performed well in Q2 with a decrease in revenues of minus 6%, notably due to the softer flows activities. The commercial momentum remains solid. On fixed income, revenues are down by 18% in temporaries into a very high Q2 last year. The current market environment was very different than the year ago with a much lower volatility in rates and authority. Indeed, client activity slowed while financing activity continued to perform well. On Financing & Advisory, revenues up 4% versus last year at EUR 854 million on Slide 21. Global Banking & Advisory maintained a solid performance in Q2 with revenue slightly down minus 5%, but a very high Q2 last year. Momentum is growth in asset-backed products. Investment Banking showed a solid performance mainly driven by DCM and [ Technomedia and Telecom finance ]. Last year, the level of activity is robust in asset finance and resilience in rehouse. Lastly, in transaction banking, performance maintained solid trends with a 42% increase in revenues compared to last year driven by business development and a positive interest rate environment. Overall, Slide 22. TBS delivered once again a good quarter. Revenues are solid, down minus 7.3% in [indiscernible] into a high Q2 last year, and costs are well contained. They are up by 2.6% on a reported basis, mainly due to one-off items related to a few disputes for an amount of minus EUR 95 million. On an underlying basis, they are down minus 4.9%, demonstrating our strict cost discipline. This translates into a competitive underlying interest income ratio, excluding IFRS of 65.2%. Profitability-wise, GBIS delivered once again a strong quarter with an underlying RONE of 16.7% in Q2 and 19.3%, excluding IFRS. On the corporate center, Slide 23, revenues are impacted by the unwinding of the hedges of the TLTRO following the decision made last year by the ECB. The total impact is expected to be around EUR 300 million in '23, out of which around EUR 100 million in Q2. In addition, revenues are impacted by additional provisions related to legacy legal disputes for a total amount of around EUR 240 million. The operating expenses include transformation charges for a total amount of EUR 184 million, largely related to costs linked to the merger of the French networks. It also includes a noncash item of EUR 50 million related to the global employee share ownership program. Last, the impact of the disposal of ALD Russia is recorded in rennet profit and losses for another -- from other assets for an amount of minus EUR 79 million. All in, the net contribution to the group's net result is negative by minus EUR 602 million in Q2. I'll now give back the floor to Slawomir.

Thank you, Claire. In one word, resilient, solid quarter in an environment which was particularly characterized by the headwinds on the net interest income in French Retail, in particular, which we discussed in the past and a trend of normalizing market conditions for our market activities. We will look forward to see you in London for you connecting to the call for our Capital Markets Day in September. And we will now turn to the Q&A, and I'm joined in addition to Claire, obviously, by Pierre Palmieri and Philippe Aymerich, deputy CEOs. [Operator Instructions] Happy that we have. And please let's dive into the Q&A.

[Operator Instructions] The first question is from Tarik El Mejjad of Bank of America.

So I mean, I want to ask you specific questions around the Capital Markets Day, but just allow me to ask you and to be -- I'm interested to understand what mindset you are? I mean, are you in a mindset of building capital faster, deliver on the ongoing strategic initiatives and remain conservative on the capital allocation mainly directly to distribution? Or do you feel actually this is maybe the time to step up a bit the growth, especially being more punchy especially on the GBS and given your background? So that's my first question. The second one is on your presence in Africa and Romania. So I know historically, the French banks and [ Soc Gen ] have been present there, but things have changed and profitability at your banks there are not really even covering the cost of equity. I mean, it's a great business, great growth, but needs investments. And is it something that you're willing to pursue? Or should we see the sign of the 4 already divested or ongoing divestments of the banks as the beginning of something that on exit there? In Romania, there were a lot of interest recently in the press of OTP exiting, and some banks were interested. Could you take an opportunity here to basically focus more on Western Europe and the Czech Republic and refocus your footprint as you started in 2019?

Thank you, Tarik. So I guess you had 3 questions on the CMD. That's how I heard them. But listen, I'm not going to comment in detail, but please really join us in September. But let's try and give you something which is about the mindset. I couldn't be simpler by saying that -- in terms of the mindset, both mine and the entire teams, mindset is very clearly focused on value creation for our stakeholders and our shareholders, in particular, who own the company and who have the right to have all the management focused on creating sustainable value for the company. And so the mindset is to make sure that we do exactly that. And I will partly address, I guess, your second question by saying among the things that we have to do as a management team, are -- is the responsibility of running a tight ship in terms of portfolio of activities and making sure that at any point in time, they make sense from the perspective of long-term value creation. And obviously, meeting the cost of equity in a sustainable way is a basic requirement that our business activities within our portfolio will have to deliver on. And so if -- I hope this gives you a hint into what the mindset is, but more details at the CMD in September. Guillaume?

The next question is from Guillaume Tiberghien of BNP Paribas Exane.

I've got a question on the equity Tier 1 under Basel IV. You had guided for 120 bps and I was wondering whether this is still the impact that you modelled or whether we can hope for better. The other one is for Boursorama. So I wish, but I don't know if you will, in the future, provide some degree of P&L for Boursorama. But if you don't, then can you at least tell us the year-on-year swing in revenues in Q2 versus Q2 last year for the Boursorama revenues that are booked in domestic retail because it seems to me that domestic retail does benefit from Boursorama getting better, yet your performance in Q2 is in line with the guidance you have given.

So we seem to have a technical blip which I choose to see as a good omen, not as a bad one. So I'm going to first start by answering Tarik's questions. And then, Guillaume, if you could ask your question again and we'll hopefully move on without further technical issues. So Tarik, as I was saying, I don't know if you heard me. I was joking by saying that you had actually 3 questions, all of them about the CMD. And so -- that I was not going to answer them in a very detailed way because of obviously, of the CMD happening in September. Nonetheless, I wanted to give you some hints. And in terms of the mindset, both mine and the entire team's mindset is very clearly focused on value creation for our stakeholders and our shareholders, in particular, who own the company and who have the right to have all the management focused on creating sustainable value for the company. And so the mindset is to make sure that we do exactly that. And I will partly address, I guess, your second question by saying among the things that we have to do as a management team is the responsibility of running a tight ship in terms of a portfolio of activities and making sure that at any point in time, they make sense from the perspective of long-term value creation. And obviously, meeting the cost of equity in a sustainable way is a basic requirement that our business activities within our portfolio will have to deliver on. And so I hope this gives you a hint into what the mindset is, but more details at the CMD in September. Tiberghien?

The 20 bps, or can we hope for better? And the second question is on Boursorama. You don't provide the P&L of Boursorama, unfortunately, but it was up quite substantially year-on-year. So I was wondering in the domestic retail front, how much of the year-on-year revenue swing is coming from Boursorama. And do you think the Boursorama of Q2 is a sustainable beginning of the growth or there are some one-offs in the Q2 of Boursorama?

Thank you. I will leave the floor to Claire on your first question, and please follow up because we didn't hear exactly the beginning. So hopefully, Claire got it right. If not, please follow up. And I'll leave the floor to Philippe afterwards to address your question of Boursorama. But spoiler alert, there were no one-offs in the Boursorama numbers this quarter.

If I heard well, the first question was related to basal impact. So as far as today, we do not review the basal impact we had gain on. This basal impact is phased in EUR 37 billion, which is around 100 basis points, fully loaded EUR 44 billion, which is around 120 basis points. This includes the impact of IFRS, which is already embedded in these figures. It includes all of the packages of basal. I mean credit risk, operational risk and also FHTV. That's all I can say as far as today, we have, as Slawomir said, the Capital Market Day on the 28th of September, where we will update, of course, our financial data, but as far as today, this is the most reliable impact we can comment on. We do not expect any significant changes in this data regarding the last version of the package. That's all that I can say.

So now turning to Philippe for the question on Boursorama.

Yes. Thanks for the question. Yes, during the second quarter, we have deliberately adjusted the marketing intensity of Boursorama for client acquisition level at 140,000 new clients, which, by the way, it's still quite robust. It corresponds to 0.5 million new clients on an annual basis. So at this level of client acquisition, you can see the full impact of Boursorama's business model. One, a strong net interest income, thanks to a robust deposit base on new inflows. Two, a very good level of fees because of a good and growing equipment rate in terms of products and also a real customer activity, notably on daily banking. And three, a strict cost monitoring, both on the acquisition side and on the operating model. So overall, we do believe that this quarter demonstrates both the profitability and the maneuverability of the Boursorama business model.

If you don't provide the revenues, can you provide the revenue swing compared with last year at Boursorama?

It's around 5x.

In million euro, what is the swing?

No, no, we don't communicate that.

The next question is from Delphine Lee of JPMorgan.

So my first question is on French retail. Just wondering if you -- why not changing your NNI guidance for the whole year, given that LIRA is not going to 4%. And related to that as well for '24, was the sort of guidance of going back to 2022 level in terms of revenues or NNI, assuming a decline in the LIRA average, just kind of trying to get a feel of what you had in mind before and now. And my second question is on the Global Markets revenues. Is the sort of normalized trading range still EUR 4.7 billion to EUR 5.3 billion given the performance we've seen so far? Just wondering how quickly we could get there in the future.

Thank you, Delphine. So I'll let Claire give you some details because they're fairly technical in nature linked mostly to the recent decision by the ECB on reserves, and remuneration. But on the global markets, I'll start with this. You can see that the current performance, basically, if you take into account some of the seasonality of the beginning of the year in this business, interest towards the higher end of the range that you are familiar with. And currently, there is no reason to change this range. And as the markets are normalizing, they were not entirely normalized in H1, if you will. We still had a very particular -- a very strong Q1 because of all the trends in the fixed income market. So the H1, what you see at H1 is something which is normalizing, but not normalized. And it's very difficult in the current situation to predict exactly where things are going to land. But you see the trend that we were foreseeing since the very beginning, and this is why we always guided towards this range. Right now, we are operating towards the higher end of that range, slightly above, but we'll see what the markets will offer in terms of opportunities. And in terms of most important decline flows in a lower volatility environment in the next few quarters. Claire?

So indeed, the positive impact linked to the stabilization of LIRA is good news. But last week, ECB made a decision about the remuneration of the mandatory reserves, which offset the positive impact of this good news on the LIRA app and this remuneration of mandatory reserves is mainly allocated to French retail. In addition to that, keep in mind that we have reduced margin on loans and lower outstandings on loans than in our forecast. So for all these reasons, we expect the net interest margin to decrease in 2023 by around 30% versus last year based on current assumptions on rates on deposits and on outstanding evolution.

The next question is from Mate Nemes of UBS.

Two questions, please. The first one is on capital. Could you just give us a sense of the remaining regulatory headwinds that you expect to your CET1 ratio? I think this quarter, it was 19 basis points from memory, that's about half of the full-year guided number that you mentioned previously. Is that still the relevant number? And then should we expect any other moving parts apart from a Bernstein Bill? The second question is on French retail NII. Do you still maintain the guidance that next year, NII could be back to 2022 levels? Is there any upside that you can see? Or that's the guidance for now?

Thank you. So I'll leave the floor to Claire and then Philippe to address both your questions.

So first, please note that the minus 19 basis points impact is related on the one hand, on the IPC deduction, which is minus 5%. And on the other hand, on regulatory impact, which is minus 14%. So now for the rest of the year, we expect the regulatory impact related to model updates, I mean TRIM, IRB to be around 30 basis points by the end of the year. And with regards to the M&A, to give you a global view on the core Tier 1 by the end of the year. The impact of the closing of a lease plant acquisition, as you've seen, is slightly below the guidance we had gave you. On [indiscernible], the closing is postponed to 2024. And on Africa, the disposal of our subsidiaries should generate around 5 basis points at closing by end 2023.

Yes. So regarding NII, as explained by Claire, the net interest income is decreasing in 2023 for 4 reasons, the fact that the benefit from TLTRO is gradually fading. Second reason, the higher client rates on regulated savings, notably on rear free the usual rate to users on mortgages. And four, the impact of the AGs, which we have put in place in 2021 and 2022 to protect the bank in the context of very low-interest rates. So all these effects are quite mechanical. So that's why we communicated that the NII will be down by around minus 20% in 2023 And similarly, the NII will mechanically rebound in 2024 with the stabilization of LIRA, the normalization of [indiscernible], and the extension of VHS.

The next question is from Flora Benhakoun of Jefferies.

The first question is actually coming back once again. Sorry for this on the French NII, but this time more to discuss the timing of the inflexion that we can expect into 2024. Do you think that the French NII is going to bottom in H2 this year? Or do we have to wait until probably H1 '24 to see the inflexion point towards NII moving back up sequentially in France? And the second question is around LeasePlan. I think you mentioned in the slide pack the contribution of the consolidation on cost and then also the transformation cost. I haven't seen the impact on revenues. So just wondering if you could give us also for modeling purposes here, the LeasePlan contribution to revenues? And one last clarification, Claire, on the capital work you just gave us, am I right that there is also 6 basis points coming in Q3 from the global share capital increase for employees?

Thank you. So we'll start with Claire on your last question. And Claire, if you could talk about the inflexion point as well, and then we'll leave the floor to Pierre to address your question on A&D.

Regarding your last question, that's correct. It's the Q3 impact. Regarding your first question related to NII, we gave you the moving parts of the NII trend. One of them being the fact that we have, let's say, all the hedges that did entail protecting the net interest margin against a decrease in interest rates. These hedges offset the benefit of the deposit increase, deposit revenues increase. And this is the main driver of the trend. We did commit and communicate on the fact that these hedges would come to an end until the first part, I mean, mid-24. So the inflexion point should be more in H1 '24 rather than this year. This year is really a dated a guide on a transition year. And we anticipate right now at current outstanding interest rates and minus 20% by the end of the year.

So as you know, as a reminder, AMD has consolidated this plan only since closing on May 22. Therefore, the contribution to the group is slightly more than 1 month and the impact in terms of revenues is EUR 200 million.

The next question is from Jay H. Gaulard of Kepler Cheuvreux.

Two questions. The first one to you, maybe talking about mindset, I thought Tarik's question was very interesting. What was quite interesting over the last, I think, 3 years when you were head of GBIS was the fact that despite the fact that your quarterly revenues were systematically higher than the range, you kept the range between 4.7% and 5.3%, 4.7%, 5.3%. And a couple of minutes ago, 4.7 billion to 5.3%. So question, is it something -- is it that mindset that you will keep for the whole of the group as far as your objectives are concerned? That's the first question. And the second one on ASD. I was surprised at the speed at which the used car sales are actually normalizing. Is it in line with what you were expecting? And can we accelerate the trend that you're giving in the ALD slide pack for '24 and going forward? Or to make it may be easier for you, do you confirm more or less the targets that you gave at the time of the LeasePlan acquisition?

Thank you very much. Thank you for your kind words. In terms of the minded question, I obviously take it, and then I'll pass on the floor to Pierre to address the ALD question. So on this particular angle of the mindset, if your question is, do I intend with the entire team and the entire company to meet the objectives that we will set ourselves? The answer is definitely yes. So that's one aspect of it. A little more color on the 4.7, 5.3%. The reason we kept, and I kept on giving this guidance and keep on giving this guidance, is exactly because we always recognized that there was a portion of the revenues that we saw as particularly linked to the exceptional nature of the environment, right, because we're talking here about post-COVID super cycle going into war and post-war cycle, everything baked if you excuse this image into a rising inflation for the first time in the Western economies in over a decade. And frankly, decade. And the regime change in rates, which is basically unprecedented in speed and spread. And so the number, right, of these exceptional features of the environment was conducive to our business in the markets because in these conditions, clients need to do much more than they need to do when volatility is low and not very volatile, which is, for instance, something we experienced quite strongly into 2017 if I remember well. And because of that, we were always cautious. We'll try to be realistic in the long term about where the equilibrium point is. And so it's not just a matter of setting targets low so that we can systematically beat them. That wouldn't make any sense. It's because our long-term view about the equilibrium point was closer to a 4.7% to 5.3 range. And right now, as things are normalizing in Q2, with still a Q1 which was strong, what do we see? We see something which is indeed coming closer to the top end of our range. And so it all makes sense. And what we're trying to do is just to give you as an accurate estimate as possible, knowing that it's not also a hard science clearly, but more experience and quality of the estimate. So now, turning to GE.

So the used car market remains still strong with recent earnings of EUR 2,614 without reduction of depreciation costs in Q2 2023, levering off from the peak observed in these last quarters. As a reminder, 3,330 in Q2 '22, 3,102 in Q1 '23. For the full year 2023, we expect the underlying UCS value units, including depreciation costs to be between EUR 1,100 and EUR 1,600 per earning. This is including depreciation costs. For the A&D parameter because we anticipate 0. As you know, the fleet has been reevaluated on the basis of fair value in the context of the acquisition. We anticipate that there will be a normalization throughout 2024. But remember, these levels are extremely high historical standards.

The next question is from Giulia Miotto of Morgan Stanley.

Two questions from me on 2 topics that haven't been touched upon yet. The first one, cost of risk remains very low, but you're dropping the guidance for below 30 basis points. I was wondering is that because you're definitely below, so there is no point in keeping it? Or what are you seeing? Is there any area that worries you, especially on the corporate side, so an update on asset quality? And then the second question is on costs. I think in the quarter, there was a strong performance with costs underlying pretty much flat despite inflation. And so I was wondering, what are you seeing there? And do you see more room for more efficiency essentially? And perhaps this is more of a question for the mindset into the Capital Markets Day, but yes, I'm interested on your take on costs.

Thank you very much. I'm very flatted by your interest in my mindset today, which is only fair, obviously. So I'll start with the cost of risk though. Basically, we're saying that we will be well below the guidance that we gave, meaning from a cost perspective, we do not see at this point in time any material deterioration, be it from a sector perspective, geographic perspective or a specific name perspective at this point in our asset quality. So we feel reasonably confident that what you're seeing right now is going to transform into a decent year from a cost-of-risk perspective, once again, well below the guidance that we gave at 30%. In terms of the mindset question about the costs. So first of all, is there room for more efficiency? As a mindset answer, always, right? There's always room for more efficiency in a company our size with the kind of product range and geographical reach range and entities that we have. So there's always room for efficiency. We're trying already, right, to do our best in terms of containing the impacts of inflation, containing our cost base, but more holistic answers to come in September. But if the question is, is there room for more efficiency? The answer is yes.

The next question is from Amit Goel of Barclays.

Two questions for me. One, just on French retail. Just looking at the customer deposit movements in Slide 50, it seems like the site deposits is continuing to come down quite meaningfully. Just curious if that does mean at some point, there will be some pickup in the pass-through rates there. and/or whether that impacts your hedging policies. And then the second question, just relating to the kind of cap return and buyback, obviously, it's very welcome the buyback starting today. Just curious in terms of the process between announcement and getting it started also, when thinking about future capital return prospects, what are the factors that lead to, I guess, the timing difference there?

Thank you. Can I, first of all, ask you to clarify your second question? Is it about the timing? I'm not sure I understood it. I'm sorry.

Sure. Sorry, it was just -- obviously, we had the announcement of the EUR 440 million with the full-year results. We're now going to start buying it. So just curious, is there a time for the regulator to approve it? Or what's the process between making the announcement versus actually commencing the actual program?

Okay. No, it's clear. So I'll let Claire give you some details, but it's approved, right, we're announcing the actual launch of it, but I'll leave the floor to Claire in a second and then to Philippe on the French return.

Okay. So first, keep in mind regarding the deposit that we have a positive evolution globally at the group level. We also have a positive trend on the price banking and port form and also a positive trend regarding the deposits from individuals in French retail. So basically, what is happening is about, yes, some corporate treasurers are reducing what I would call the excess site deposits to benefit from agent shift a portion of the deposit to over in-house treasury products. So that's what is happening. At this stage, it has no impact on our hedging policies or on all this.

So regarding your second question, we had announced for the Q1 results that we had a green light from the ECB. So the reason why it's launched now is in test is for technical reasons. We had closed periods that explain the launch right now.

The next question is from Anke Reingen of RBC.

Just coming back to a cost question. But on French Retail Banking, given you completed the integration. I mean aside from anything you might announce on the Capital Markets Day, can we now assume that costs can continue to run at flat or potentially even downward year-over-year comparison? And then secondly, just a boring corporate center question. Do you think the gross operating profit in Q2 ex the EUR 100 million, it's like that would be around EUR 100 million negative? Is it a good run rate on a normalized basis?

Thank you. So I'll leave the floor to Philippe. It's about the cost on integration after post-integration, whether they are poised to stay flat or even slightly down, obviously not talking about any Capital Markets Day item. And then, Claire.

Okay. So yes, I mean, we are definitely coming to deliver the cost reduction which has been announced as part of this creation of the new bank. As mentioned at the beginning of this meeting, the legal completed the IT integration also. So that's why in 2023, we are going to have the benefits of the decommissioning of the IT platform and we start to have the benefit of the restitution of the network of the merger of ports. Just to give you an idea of the momentum for 2023 and starting at the beginning of the second half of the year, we are supposed to close 160 machines, and we are already clear within a month close to 60 margins. So at the moment, I'll leave it there. And yes, we will deliver what we said.

So regarding your second question related to the corporate center. In the corporate center, we booked some one-offs, and we booked notably in business as usual. The results related to free hedges or the replacement of the own funds. So this result is, by nature, slightly volatile. So we do not guide on this part of the revenue and on underlying revenue for the cap rate center. This quarter, you've seen that we have some one-offs. We have a minus EUR 240 million one-off in the revenue related to old legacy disputes. And we have also in revenue related to the TSR, which has an impact of minus EUR 100 million this quarter. And we anticipate for the full year around EUR 300 million negative results related to this underlining.

[Operator Instructions] The last question is from Chris Hallam of Goldman Sachs.

Just 2 quick questions to finish it off. So first on corporate deposits. On Slide 14, you mentioned they declined in the quarter. Maybe if you could just provide some color on where those deposits are going? Are they going to other banks, other asset classes? Or are they just being re-consumed by those businesses in their day-to-day operations? And then second, on capital markets, several CEOs have spoken about seeing green shoots and capital markets activities. So I just wanted to get a sense of how you think about the near-term outlook for the Global Banking and Advisory business and how that is either sort of helped or hindered by the later closing of the Bernstein deal.

So I'll start with your second question and then pass on the mic to Philippe to address your first one. So once again, in this business, we have clearly, for all the reasons I spoke about earlier, normalizing trends. It's true in the global markets business, which I spoke to earlier. And it's true also on our financing side on the Global Banking and Advisory in particular, where, as you may remember, when we spoke at the Capital Market Day dedicated to GBIS, I guess it was roughly 3 years ago. We were talking about a potential growth of 3% per year. We actually have printed throughout the sequence something which was in mid-teens. And so clearly, a mid-teens growth in this business was outstanding. It was a testament to the quality of our franchises and of our client relationships. But clearly, this was not a trend which was in any way sustainable. And so from this perspective, our view in this business is clearly a normalization. And in terms of the Bernstein integration and the fact that we will most likely close it next year, it has one to do with the fact that it's a double carve-out, as you know, which we are executing, and there are a few operational delays, and the process is heavier, let's say, than just merging 2 companies. But from revenues and impact on the entirety of GBIS, given the size of this business, this is not something which would meaningfully change the picture for the GBIS performance in the next few quarters. Philippe?

Yes. So regarding corporate deposits, I think you said it all. So yes, we are seeing some usage by the clients for their operating needs. Yes, we see some shifts between asset classes. So basically, a reduction of [ side ] deposits, transfer to deposit on market funds. But overall, our trend is consistent with what we see on the French market. So we have not identified any loss of market share. This is your question. And of course, we are monitoring all these topics very carefully I would say, every day, for clients, making sure that we are answering with it.

The last question is from Pierre Chedeville of CIG (sic) [ CIC ]. I think he withdrew his question.

So I assume he got all his answers. So I think if there are no more questions, I want to thank you warmly for joining the call this morning. I wish you a nice summer and a nice rest if you're taking some days off. And definitely, we all look forward to seeing you in London or having you connect remotely to Capital Markets Day on September 18. Thank you very much, and talk to you very soon.

Ladies and gentlemen, thank you for your participation. You may now disconnect. Thank you.