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

Ladies and gentlemen, welcome to the Societe Generale Third Quarter 2023 Results Conference Call. I now hand over to Mr. Slawomir Krupa, Chief Executive Officer. Sir, please go ahead.

Thank you. Good morning, everyone. Thank you very much for joining our quarterly earnings call. This quarter was marked by a good commercial performance in most of our businesses, a limited increase in operating expenses and a low cost of risk. Global Banking and Investor Solutions, in particular, posted stable revenues compared to a high reference point reached last year. And International Retail Banking maintained as well a solid performance. On the other hand, the group's net result was penalized by the negative effects of short-term hedges on net interest income in the French retail, the impact of which peaked in Q3 '23. It also includes, as announced during our Capital Markets Day, exceptional accounting items with no impact on capital ratio and no impact on shareholder distribution. On the 1 hand, it was the impairment of goodwill, and on the other hand, provisioning of deferred tax assets for a total negative impact of EUR 610 million on the net income. This leads to a group net income of EUR 295 million for the third quarter, EUR 905 million, excluding the noncash items and it amounts to EUR 2.1 billion for the first 9 months of the year. On costs, operating expenses are up by less than 1% at constant parameter, leading to a cost income ratio of 70.4% for the quarter, and this ratio stands at 72.4% reported for the 9 months and 68.9% if we exclude the contribution to the SRF. Regarding cost of risk, the defaults remain limited, and we maintain a high S1, S2 inventory, and all in all, the cost of risk is at 21 basis points in Q3 '23. Overall, the reported ROTE stands at 3.8%, 6% excluding noncash items, and it is at 5% for the 9 months on an annual basis versus 1% last year. Excluding the contribution to the SRF, the 9 months '23 ROTE stands at 6.5%. Allow me here to make the comment that this is the first quarter where we do apply our new approach to the results communications with a focus on the reported numbers, which obviously is a significant change that has to be kept in mind. Finally, in line with the previous quarters, the balance sheet is very solid with a CET1 ratio of 13.3%, up 20 basis points this quarter and a robust liquidity profile with an LCR ratio, in particular, which remained strong at 147%, thanks to high liquidity reserves and stable deposit base. Before leaving the floor to Claire, I simply would like to take a brief moment to highlight once again our strategic ambitions and in particular, the commitments we announced during the CMD with the addition of a new target today on steel, which we disclosed as part of these results. As explained in September, ESG is at the heart of our strategy. We are strongly committed to a more sustainable world and to increasing our contribution to the UN sustainable development goals by both accelerating the pace of decarbonization of our businesses, but also, as you know, through investing for sustainable future through a EUR 1 billion investment fund and also relying in our thinking and decision-making on the inputs of the Scientific Advisory Board because these topics are complex and require scientific foundations to enhance the decision making. ESG is imperative for us. It's fundamental to our strategy, and it has been once again recognized by Sustainalytics this quarter, positioning us among the best banks in the world and the only French Bank rated low risk. I will now leave the floor to Claire who will give us more details on the financial results.

Thank you, Slawomir, and good morning to all. Let's start now by looking at the revenue on Slide 6. In Q3, the reported total revenues of EUR 6.2 billion down minus 6.2% compared to high Q2 in '22. Business by business, Global Banking and Investor Solutions recorded solid activity with revenues almost stable compared to a very strong Q3 last year, thanks to a robust performance of market activities and a record third quarter for financing and advisory. Similarly, International Retail Banking posted solid revenues up by 3% compared to Q3 last year, thanks notably to a solid momentum in Romania and a strong performance in Africa. However, those new business performances do not allow to fully mitigate the decline in revenues, which is due to: First, the continued negative impact of French retail of short-term hedges of the NII which peaked in Q3 before maturing progressively in H1 '24. Adding the PEL/CEL impact, the NII in French retail is down by EUR 317 million compared to last year. Second, a decrease by EUR 270 million in revenues of the corporate center due to the impact of the unwinding of the hedges under TLTRO and to a base effect compared to Q3 '22 on volatile items. Also note that the integration of LeasePlan results in a contribution of EUR 300 million of additional revenues. Over the first 9 months of the year, the trend is similar with good performance in GBIS and international retail, while the decline in revenues come from the NII in French retail, the impact of the hedges on the TLTRO and one loss impact which closed in Q2. This is also the consequence of a very high '22 comparison base, which explains, for example, while market activity shows a decrease in revenues of almost EUR 300 million compared to last year. Overall, the revenue generated, since the beginning of the year, are in line with '21. Let's have a look on the operational performance on Slide 7. Despite the integration of LeasePlan, which contributed around EUR 340 million in the current state, operating expenses only increased by 2.4% over the 9 months compared to last year, a level well below inflation. Excluding the changes in parameter, the positive evolution of the contribution to the SRF and the transformation charges, the increase in the 9 months [indiscernible] amounts to around EUR 250 million compared to last year, which means less than 2%. This illustrates the importance we place on strict cost management, which we intend to further strengthen going forward. All of this leads to a reported cost/income ratio of 72.4% for the first 9 months in '23. It's 68.9%, excluding the contribution from the SRF. As indicated during the Capital Markets Day, we expect a linear improvement of the cost income ratio from '24 onwards. Let's now move on the next slide on the cost of risk. It remains contained across businesses. At group level, it stands at 21 basis points in Q3 and 15 basis points in 9 months. It demonstrates once again the quality of our assets, with still no material deterioration of our portfolio. For the quarter, the cost of risk amounts to EUR 316 million, of which EUR 419 million in Stage 3 and a net reversal of EUR 103 million in Stage 1 and 2. Regarding the latter, it's mainly explained by a reversal of provision on Russian assets linked to the significant decrease in Russian exposure, as we will see in a few moments. The NPL ratio remains low and stable compared to Q2 last year at 2.9% -- compared to Q2 this year at 2.9%. The gross coverage ratio is solid at 46% and the net coverage for collateral and guarantee stands around 80%. At the same time, we maintain high precautionary provisions on stage 1 and 2 assets in Q3. At the end of September, the total outstanding of Stage 1 and 2 provisions amounts to EUR 3.6 billion, i.e., 2.8x Stage 3 cost of risk in '19. In this context, we revised downwards our cost of risk guidance for the year, which is now expected below 20 basis points in '23. A few words now on risk management on Slide 9. First, we think important to update you on the Russian exposure. The group has further materially reduced its offshore exposure, which now stands at EUR 1 billion at the end of September. It represents a 38% decrease compared to end of June. The net exposure at risk on this portfolio is now around EUR 300 million before provisioning. The residual risk is highly covered by a total provision of around EUR 200 million. The onshore exposure remains limited at EUR 15 million. Overall, this orderly exit from Russia contributes to further reduce the tail risk at group level. More broadly, the group can rely on a strong asset quality, as illustrated once again by the low cost of risk, even in a more challenging economic environment as it is today, with higher rates and inflation. Our home loan portfolio is, for instance, largely composed of fixed rate loans, which is very protective for clients. At the same time, we have maintained strict monitoring, prudent origination policies and limited exposure to the most sensitive sectors and asset classes such as commercial real estate, LBO, nonbanking financial institution or even with professionals and SMEs, notably in the construction, non-food retail or catering sectors. All of this led us to revise downwards our anticipation in terms of cost of risk. Let's now turn to capital, Slide 10. At the end of September '23, the core Tier 1 ratio lands at 13.3%. It's up 20 basis points compared to last quarter, and it's now 350 basis points above the MDA. The fully loaded ratio stands at [ 13.2% ]. The strong quarterly increase results -- the strong quarterly increased results. First, from an organic capital generation of 15 basis points, plus provision for distribution; and second, from a decrease in organic RWA for an equivalent of 16 basis points, mainly due to a strict monitoring of RWA combined to a lesser extent with some delay in capital consumption of businesses. This is a perfect illustration of the kind of monitoring of organic capital between 2 halves. This quarter, we also benefited from 6 basis points related to the group employee share ownership program. On the contrary, regulatory items have a negative impact of 16 basis points in Q3. Overall, the risk-weighted assets remained broadly stable at EUR 384 million, and the other capital ratios are all comfortably above requirements. Moving on to liquidity, Slide 11. First, let's note that our '23 long-term funding program is almost completed at 98%. The standing 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-quality reserves and a limited reliance on short-term funding. The robustness of the liquidity profile has been further strengthened in Q3 with, on the one hand, a stable deposit base compared to end of June, and on the other hand, higher liquidity reserves, which are up by EUR 25 million compared to last quarter. Overall, the loan-to-deposit ratio stands at 81% at group level and the LCR ratio remained strong at EUR 147 million plus repayment of EUR 5 billion of TLTRO in Q3. I will not comment on Slide 12. And let's now turn to the business performance, starting with French Retail, Slide 14. As stated during our Capital Markets Day, please note that insurance is now reported with SG network and private banking. On the credit side, total loan outstanding is down minus 4% in Q3 versus last year with differentiated trends between retail and corporate. Corporate activity remains resilient with loans excluding PGE up plus 1% versus last year, driven by short-term loans. On state guaranteed loans, outstanding has decreased from around EUR 18 billion at the end of '20 to EUR 8.9 million currently, down by minus 31% compared with Q3 last year. On loans to individuals, the group remains cautious with a continuing selective approach in home loan production started in '22, which translates now to a decrease in home loan outstanding by minus 5% compared to Q3 last year. On the deposit side, total outstanding are stable versus Q2, with deposits still shifting from side deposits to term deposits. On savings, the group is experience in growing assets under management. Private Banking assets under management are up plus 5% with net inflows of EUR 0.6 billion. Life insurance outstanding is up plus 2% to EUR 132 billion with gross inflows amounting to EUR 2.6 billion. In France, the year-to-date net inflows are up amounting to EUR 0.5 billion. Finally, premium increased by 4% in protection versus just the last year with P&C Premia being up by 9% versus last year. Let's now focus on the French Retail Banking net interest income, on Slide 15. As you can see, and as already stated since the beginning of the year, we have reached in Q3 the peak of the negative impact of short-term hedges on NII put in place until early '22. For '23, we now expect the NII to be down by more than 20% compared to '22. Starting with a slight increase expected in Q4 at constant balance sheet and rate environment, we expect the NII to progressively improve over the coming quarters to reach in '24, a level at least equal to its level in '22. Note that this projection is based on assumptions consistent with our current economic scenario, which was slightly updated since the Capital Market Day. In terms of NII sensitivity, it has evolved since the Capital Market Day following next up carried out time. It's now around plus EUR 20 million in year 1 and around plus EUR 40 million in year 2 for a 10 basis points rate increase. It remains stable at around EUR 30 million for a move of EUR 1 billion in sight deposits. Moving on BoursoBank, we changed its brand name during the quarter, Slide 16. In Q3, BoursoBank posted a record high quarter with the onboarding of 412,000 new clients, in line with the new target set last September. Since the beginning of the year, the number of new clients largely exceeds 800,000 with a stable overall profile. At the end of September, BoursoBank reached 5.4 million prime with a low churn rate, which is further decreasing and below market standards. The assets under administration continued to increase at a consistent pace per vintage. On the commercial front, deposits and financial savings significantly further improved. They are up 21% at EUR 55 billion. In particular, BoursoBank continued to collect high amounts of deposits, notably those bearing interest. Similarly, net inflows in life insurance are slightly positive. While remaining significantly lower than pre-COVID, home loan production started to rise again this quarter. On the day-to-day banking, the activity continued to be strong and grew by 20% in Q3 with a record number of operations of credit card. Let's now comment on the quarterly P&L. The French Retail Banking activities including private banking and insurance generated a net profit of EUR 110 million in Q3. Total revenues, excluding PEL/CEL are down minus 15% versus Q3, last year due to the headwind of the net interest income as previously guided. Net interest income, excluding PEL/CEL, is down minus 27% versus last year, and minus 21% in 9 months. Therefore, we now expect the net NII to be down by more than 20% in '23 compared to '22. Meanwhile, commissions remained resilient, down by 2% versus last year. The decrease is mainly due to services, notably in the context of BoursoBank's acceleration in client onboarding. The financial fees being up compared to Q3 last year. Regarding costs, they remained under control. They are down by 2.7% compared to the Q3 last year, and include a EUR 46 million change -- charge for transformation costs. Last, cost of risk remains counting at 18 basis points. Overall, the reported RONE comes at 2.8% in Q3 and 4.5% for the first 9 months. Turning on to Global Markets and Investor Solutions, Slide 18. On Global Markets, revenues remained solid at EUR 1.3 billion. Despite the less conducive market environment last year, they are slightly down by just 2% compared to a record third quarter in '22. In details, Equities had a strong performance considering the record Q3 last year with a slight decrease of 1% in Q3. We have observed a normalization of the market conditions for flow and financing activities, almost fully offset by a robust level of commercial activity driven by strong momentum in Investment Solutions. On fixed income, revenues are down by 5% in comparison to Q3 last year. The current market environment was less conducive of flow activities. Similarly, to the equity platform, client activity has passed its high in investment solutions and rates. On Financing & Advisory, we maintain a high level of activity. This is the highest Q3 ever at EUR 827 million, representing an increase of 2% in comparison to Q3. Global Banking and Advisory displayed a good performance in Q3 across businesses with revenues slightly down by 3% versus very high Q3 last year. In detail, we benefited from, first, a sustained momentum in asset finance and natural resources; second, a solid client activity in asset-based products and finally, a rebound in investment banking, driven by acquisition finance and continued solid performance in debt capital markets. In transaction banking, performance is still robust with an 18% increase in revenues compared to last year, still driven by both business development and a high interest rate environment. Overall, Slide 20, GBIS delivered a very good set of results in Q3. Revenues are solid, flat in comparison to a high Q3 last year, and costs are well contained. Despite the current inflationary context, they are up only 0.6% on a reported basis and includes EUR 41 million of transformation charges. This translates into a competitive reported cost income ratio at 64%. It's 17% in -- it's 70% in 9 months on a reported basis and 63% excluding SRF. All in all, it's once again a strong quarter with a reported high teens RONE of 16.9% in Q3 and 18.8% excluding SRF for the 9 months. On International Retail Banking, on Slide 21, the 2 regions had good commercial activity in Q3. In Europe, loans outstanding are up by 5%, deposit by 3% on a yearly basis. Outstandings are up across segments in both countries. In Africa, loans grew by 4% and deposits by 3% versus Q3 with a strong business performance in sub-Saharan Africa. At EUR 1 billion in Q3 '23, revenues improved by 2.8%, thanks to a strong increase in Africa by 11% and a good performance in Romania, whose revenue are up 8%. These robust performances more than compensate to pressure on the NII in Czech Republic which is down compared to a very high level in Q3 last year. Overall, our international division maintained a satisfactory performance this quarter again with RONE at 17%. In the Mobility & Leasing Services division, revenues increased by 22% in Q3, thanks to a 37% rise at Ayvens which benefited from a contribution of EUR 300 million from LeasePlan. Regarding Ayvens, margin revenues linked to leasing contracts and service margins remained stable versus last year, on a like-for-like basis. Used car sales are normalizing at EUR 1,033 per unit, including the reduction in depreciation costs down versus a very high Q3 last year at EUR 3,014 per car. Excluding depreciation costs, used car sales results per car is down to EUR 2,346 in Q3 from EUR 3,607 in Q3 last year. Please note that this strong revenue contribution of EUR 300 million has been impacted by 2 specific elements in Q3. First, a negative mark-to-market impact of EUR 82 million related to the hedging portfolio of LeasePlan and second, and pending the finalization of the PPA, consolidation adjustments on the used car sales results and depreciation costs, which impacted by around EUR 150 million the revenue contribution in Q3. Activity-wise, earning assets increased by 14% compared to Q3 last year due to the rise in car values. And at the same time, the standing fleet grew by 3.4%. When it comes to the consumer finance business, loans increased by 3%. Revenues are down notably in France due to the impact of the usury rate and the competitive landscape. Finally, equipment finance leasing outstanding are up 4% with stable revenues quarter-on-quarter. All in all, Slide 23, International Retail, Mobility and Leasing services contribute to the group for EUR 377 million net income, equivalent to a 14.9% RONE. Revenues increased by 12% and cost by 34%, essentially due to the integration of LeasePlan and the negative [indiscernible] in Czech Republic compared with a very high Q3 last year level. According to the cost income ratio, it increases to 56% in Q3, 54% in 9 months versus 49% in 9 months '22. Cost of risk at 43 basis points remained contained in Q3. On the Corporate Center, Slide 24. Revenues are down year-on-year, notably due to the unwinding of the hedges of the TLTRO that had a negative contribution of EUR 63 million in Q3, out of a total impact around EUR 300 million in '23. In addition, the volatile items related to the fair value of the swap used for the replacement of the equity stake in the subsidiaries, which were positive last year by more than EUR 100 million, led to a strong base effect. Moreover, and as it was announced during the Capital Market Day in September, the Q3 results include 2 noncash items. First, the impairment of the goodwill of Equipment Finance and on the Africa, Mediterranean basin and overseas activities for a total amount of around EUR 340 million; second, a provision of DTA for around EUR 270 million. All in, the net contribution to the group's net result is negative by minus EUR 839 million in Q3. Let's now give back the floor to Slawomir.

Thank you, Claire. Just a few words before moving on to the Q&A. This quarter is a mix, as you've seen between strong to a solid performance across a number of businesses, obviously negatively impacted by the continued drag on the French NII and the number of items, which we had discussed at the September Capital Markets Day, leading to a transitionary quarter in a transitionary year as some of you put it this morning. In terms of the Q&A, let's stick with our rule of two questions per person and [indiscernible], the floor is yours.

[Operator Instructions] First question is from Giulia Aurora Miotto with Morgan Stanley.

Two questions, please. The first one is on French Retail. I'm a bit confused by the changing rate assumptions, if I understand it correctly, it's 40 basis points higher than it was during the Capital Markets Day, but the guidance seems unchanged. That's why I was wondering how does that work? And by guidance unchanged, I mean 2024, NII being at least equal to 2022? And then my second question on regulatory impact, you took 16 basis points in the quarter. The previous guidance was for 50 by year-end, does that still stand? Or is there any change?

I'll leave the floor to Claire on both your questions.

So I will answer quite quickly. First, on the French Retail. So we updated the economic scenario in line with our Chief Economist's view. So the discrepancy, the gap is really small. It's disclosed in the slide. And the impact is not significant regarding the trend on the net interest margin. So we updated the financial assumptions to be fully transparent, but it has no significant impact. Regarding the end of year guidance on quarter 1, we have no change compared to the Capital Market Day. We still anticipate by the end of the year, a 30 basis point impact regarding regulatory impact, mainly leads, as I said during the Capital Market Day to the on-site inspection on hybrid and also on the impact of the TRIM and IRB repair impact.

The next question is from Tarik El Mejjad with BofA.

Two from my side, please, as well. I'll come back to the NII in French Retail. So clearly, you upgraded a bit the guidance, at least for the short interest rates, but -- and also, you mentioned 2024 would be above or equal to '22, which is -- should we read it as a slightly more positive or you still reiterate exactly the same guidance? Because if it's the same, then there's something in between that has been more negative because better assumptions similar guidance, what's others? And then a linked to that, should we expect some more potential temporary headwinds that you haven't announced yet that you're still trying to figure out. I mean, for example, is the MRR included in your -- changing MRR is included in your numbers. And also, is there any other hedging that you didn't mentioned that could still intervene in the next few quarters? So in a nutshell, is really a negative news on the NII out? And the second question on capital. Maybe I'm reading too much, but I saw this nice African map where you don't mention Tunisia as under review anymore. So is that just me reading too much? Or is there any change in there? And lastly, on the dividend, you accrued 50% payout. Just to confirm that this is just because the ECB asked you to take the higher end of the range. And then at the full year you will take back some of the capital that you over accrued. And yes, that's my question.

Sorry, I didn't press on the button. Sorry. So thank you for your questions. I'll take the last two. Yes, the provision for the dividend is linked to regulatory principle of provisioning the higher end of the range if you have a range. And it's not the self-signal as to what will be decided by the Board at the end of the year. In terms of Tunisia, no, there's no change in the situation. The review is still ongoing. There's nothing -- no news there either way. And I'll leave the floor to Claire for your first question on the NII.

So regarding the NII, we tried to disclose as precisely and transparently as possible our assumptions on the Slide 15. So you're right, the underlying assumptions are slightly better than for the Capital Market Day. We keep an assumption regarding the Livret A rate, which is fixed. We have disclosed our assumptions regarding outstanding and interest rate. So in a nutshell, it's slightly better, but it doesn't change dramatically the guidance, which is equal or better than '22.

So is the impact of MRR in this guidance?

No. It's written on Slide 15.

The next question is from Azzurra Guelfi with Citi.

Two questions from me. One, again, on the NII. Could you give us the change year-on-year of the NII from the component of the hedging? And how much has been commercial deceleration that we have seen? Because in that way, we can see the progression just on the commercial ex-hedging that will be quite helpful because if I understand when the majority of the drag was from hedging this quarter, but there was also some deceleration on the commercial side. So if you can split that, that would be helpful. The other question is on the Mobility division. When we look through the future, what are the main moving parts on the revenue that we still need to see playing out on the negative side, the funding realignment, the used car sale pricing? Can you give us some color on that?

Thank you for your questions. We'll start with Pierre Palmieri, Deputy CEO. So overseeing, among other things, this business, and then we move onto Claire on your NII question.

Yes. Well, thank you for the question. So I think several things. First of all, on the margin, we have seen a stable margin, but in a context where the fleet was increasing, the net earning assets were increasing. So it means that we have seen a basis points decrease in the margin, which is something that is going to probably to maintain it to be a little bit lower than what we have seen in the past, but is being addressed by the management. Second is the negative mark-to-market on the swaps. So we have a mark-to-market of EUR 220 million today that will progressively come down to 0 as the derivatives book will mature and in line with the evolution of our leasing contracts. These are the two negative trends. In terms of used car sales, I think we gave a guidance of negative of EUR 1,200 to EUR 1,600 for the full year. So this is the price post depreciation. And we may -- I think ALD is maintaining this guidance and so are we.

So regarding NII, I will not come back to the assumptions related to rates and to outstanding, which are disclosed. To answer your question regarding hedging, regarding balance sheet hedging, we slightly adjusted our balance sheet hedging with the sensitivity, which is disclosed at the bottom of the slide. And regarding the NII hedging, which is a referral to your questions, we have in Q3 an impact by EUR 500 million. And year-to-date, since the beginning of the year, we are around EUR 1.2 billion out of the EUR 1.6 billion we had disclosed at the Capital Markets Day.

The next question is from Chris Hallam with Goldman Sachs.

Just two for me. First, just if you could give us the profit drag from BoursoBank in the quarter and on deposits? Just to check, does the 2% to 3% deposit growth you're talking about for 2024 on Slide 15, does that include BoursoBank? If so, should we just assume that next year BoursoBank deposits are up and SG network deposits are down? And then secondly, on Slide 41 on your U.S. CRE portfolio. I know it's really small, but just looking at it, it looks like resi exposure ticked up since Q2 as well as the portion that's classified as S3 also increased sequentially. So I just wanted to check what the plan is there. Is it just sort of gradually manage down that overall exposure or sort of keep it humming along at the current levels?

So first question for Claire. And then Stephane Landon, our CRO, will address the second one.

So it will be short on the first one. Yes, the assumptions include BoursoBank.

I'm not sure I get the full part of the question, but if it's regarding the commercial real estate portfolio, what we can say at this stage is that there is no significant increase. I mean, it's a slight increase, very marginal. There is no intention at this stage to grow the portfolio where it is right now. On the second part, which is regarding the S3, we have increased slightly the proportion of S3 through this quarter, yes.

The next question is from Flora Bocahut with Jefferies.

Yes, thank you. The first question is going back to Ayvens. It's a difficult quarter to read. I find there's many one-offs. There is obviously the combination with this plan, the restructuring and many things. So maybe a simple question there, but should we consider the reported numbers that you present for Ayvens today or what it is in your Mobility division as the trough, the bottom? And the reason why I'm saying this is, when I compare this to what was described as the normalized level of net profit at the CMD of ALD at the time, it looks like we are there at the net profit level this quarter. The second question is on the Corporate Center because obviously, the revenues were a bit lower than expected this quarter. Part of that is one-off, the TLTRO hedge unwinding, which I think is over now. But then there is this big move again on the fair value of the swap. So maybe can you help us how should we think about the normalized run rate of revenues for the Corporate Center, maybe on a full year basis?

Thank you. So Pierre on Ayvens and Claire on the Corporate Center.

Yes, I understand the difficulty to read the results of the Ayvens this quarter. So it's a function first on the fact that we are in the process of an acquisition. We are also in the process of the post-closing adjustments, and therefore, with the [indiscernible] should end before end of the year and this will bring more clarity. We have some exceptional such as the negative impact of the hedging book. But all this should normalize progressively. And I think in the coming quarters, progressively the numbers will be much easier to read and to compare 1 quarter to the other.

So regarding the Corporate Center, we do not guide on revenues on the corporate center because by essence, it's volatile. What I can say regarding the Corporate is that first, regarding TLTRO, we have guided on the EUR 300 million impact, and we come to an end with EUR 63 million. We still have a few millions for the last quarter, but far less significant than the first quarter. Regarding volatile NII, the -- most of the impact is related to a base effect with a significant revenue last year. This year, we have slightly negative revenues driven notably by the GDP rate curve 5 years exactly. But most of the impact comes from the basis effect compared to last year.

The next question is from Matt Clark with Mediobanca.

Two questions from me. The first 1 is going back to the long-term swap portfolio impact, which you disclosed at the Capital Markets Day. So the EUR 700 million benefits 2023 that was on Slide 52 there. I just want to understand exactly what that represents because comparing it to the EUR 15 billion of notional you get there, it implies a very, very high yield of kind of 8% or more on that portfolio. So I just want to understand if I'm missing something or what is the yield on that long-term swap portfolio at the moment to help understand what that EUR 700 million represents? And then my second question is on the digital euro and whether you see any impact on your business from that in coming years, effects or opportunities.

Okay. If I understood well, your second question is on the digital euro. So I'll say a few words, and then I'll pass on the floor to Claire on your first question. On the digital euro, let me put it this way. My first question is, I think, as an industry, including in the industry, the regulator, the central bank and everybody is thinking about this evolution. I think we all want to make sure that we all understand what the purpose of that currency, so to speak, that tool for both the customers, obviously, there might be some benefits to the customers, but obviously also for the Central Bank and for us to understand how does that interact with the way the banking system functions and the way for the Central Bank, I guess, the monetary policy of function. So the point I'm trying to make here is, I think we all need to understand better what the purpose of these developments would be. Now second comment. We are more generally speaking, through some of our developments in -- within GBIS on the SG core side are very keen to experiment and design solutions for a world, which is not fully here yet, but which might change in the future and making sure that in terms of digital assets, digital currencies, we have something eventually which helps transparency, which helps disintermediation, which helps everybody basically be more active and more efficiently active in the financial system. So we don't expect a lot of impacts positive or negative from this in the years to come, but we are very much engaged both with the central banks that are thinking about this and also ourselves in terms of our own innovation and development in the space. That's all I can say at this point. Claire?

Regarding the swap portfolio, so excluding the short-term net interest margin, the portfolio didn't change significantly with the Capital Markets Day. This portfolio is the hedging of our [indiscernible] related loan production or the replacement of our deposits. So since mid-September, capital marketing, no significant change and no significant impact in the revenues. We had disclosed for the Capital Market Day, which were, as you said, 0.7% for this year, 0.3% for next year and then to 0. So it may change with the course of business, considering our new loan production going forward. But at this stage, no material or significant change in the amounts we disclosed.

Can I just follow up? On that EUR 700 million, am I right to think that, that's the spread between a fixed leg and a floating leg with EUR 15 billion notional? Is that the right way to look at it?

It's an accrual -- it's -- the NBR we disclosed on the swap portfolio, is exactly, as you said, the gap between fixed and variable rate. But the only disclosure I may have is that we account in a macro hedging strategy, our resolve on an accrual basis. So its results, it's not a mark-to-market for sure and it results on an accrual basis.

But then, I mean, if floating rates are currently 3% or 4%, it implies a very high kind of fixed rate yield on that portfolio, like higher than risk-free rates have been historically. I don't quite understand how the yield can be so high then.

If I may just come back also to the swap portfolio, as the swap portfolio that hedges our balance sheet. The swap portfolio had used for example our real estate loans, which are very long-term loans. It's a replacement of our deposit, so it's several maturities. And it's a portfolio that has been built over the years during the normal course of business. On a monthly basis, we hedge the daily production. That's why I'm not sure that it would be really relevant to have an approach with a notional and all that stuff. And that's why we saw that it was more efficient to disclose the actual NBI that at the end of the day, will impact the net interest margin.

The next question is from Delphine Lee with JPMorgan.

So just so I have a very few small questions. One on the French Retail, again, sorry. Just wanted to understand two things. Like one on the sensitivity, why is it now a bit lower to 10 bps versus what you disclosed before? And secondly, also on your deposit assumption of growth of 2% to 3% for individuals. Can you just explain what you're seeing this is driven by? I mean the trend so far has been -- have been a bit more difficult than that. And then my second question is on the payout for this year. Is the intention still to have a bit of buyback and do you care about the actual [ DPS ] level? I'm just trying to get a better understanding of what that mix would look like? And also if it would be 40% or how you look at this, given that your profits are a bit lower this year?

Okay. So thank you very much, hello. So on the sensitivity, I'll leave the floor to Claire in 2 seconds. On the deposit dynamics and growth assumptions, I'll leave the floor to Philippe, Deputy CEO, in charge of among other things of French Retail oversight, and I'll address now the distribution. So the distribution a little bit along the lines of what I said in September. For 2023, the 40% to 50% guidance applies. And given the year, right, which as you see is a transitional year, it leads to levels of potential distribution, which are obviously lower than in the normal year. And this is why I said that it's going to be an ad hoc decision of the Board at the end of the year when we have the annual books in terms of what the mix will be and what the level will be. Now in the context of the CMD, I think I also made it clear that in terms of our process of building up capital, it would be fair to assume as a central scenario that we would be towards the lower end of the range at the beginning of the trajectory and potentially at the higher end of the range later on. Now in the end, it's a Board decision which will happen in January. Claire, on the sensitivity and Philippe on the deposit dynamics.

So regarding the sensitivity to a plus/minus 10 basis points increase or decrease in interest rates, we have, as I said during the presentation, slightly adjusted our hedges. We consider that we are at a high level of interest rates during our ALCO, I mean, ARM Committee, Chaired by Jerome, with all businesses around the table. We made a decision to slightly adjust this, let's say, risk appetite, and we disclosed it in this quarterly presentation. So we have slightly reduced the upside in case of additional rate increase, but slightly decreased also the loss in case of a small decrease in the interest rates. And considering the fact that has been done at market conditions, it does have no significant impact on the accrual, if I refer to the previous question.

Okay. Thank you for your question regarding the deposits. So here, we have various drivers. The first 1 regarding corporate, it's yes, we would take into account a shift or shift from sight deposits to term deposits and more globally from deposits to money market fronts or in-house treasury deposits. And what is important for us with the Corporate is, of course, to monitor closely the situation, not only the deposits themselves, but also the flows around all the activities of cash management. Regarding individuals, the deposits remain very resilient. With also a shift from sight deposits to term deposits, notably for private banking clients. And also, we continue to have a solid increase in our asset under management regarding life insurance. And so basically, we take into account the combination of all these elements, keeping in mind that, of course, taking care of the savings of the deposits of our clients, it's critical, both for them and for us.

The next question is from Amit Goel with Barclays.

Two questions for me. The first, actually, just on NII, but coming back to the 2023 expectation. So I just wanted to understand a bit more in terms of why that expectation has also been revised kind of downwards and if there is any kind of inflation hedge impact there, too? And then the second question, just in terms of the capital development in the quarter. So those are the kind of 16 bps benefit also from organic RWA development. I just want to check, is that just kind of loan book contraction? Or is there any kind of optimization in there? And if we are to model kind of loan growth going forward, so would that piece be reversing?

All right. Thank you very much. I'll talk about the organic RWA, and I'll leave the floor to Claire on the NII question. So on the organic growth, it's 2 things. I mean, it's an important component of our thinking going forward. And so yes, clearly, we are making sure that we constantly work on optimizing these trends and our consumption of capital in our businesses, but it's also linked with seasonality, simply this year. And it's not impossible that we would have a slight growth, let's say, a higher growth pace in Q4. But within the general strategy that we described in the long term with the figures that we provided you with during the CMD with no average organic RWA growth for most of the businesses outside of Ayvens and Boursorama. So that's on capital. On the NII, Claire?

So on the NII, we revised downward the guidance but not that significantly down. It's to be fully transparent, slightly above 20%. So it makes an impact from the end of the remuneration of the mandatory reserves to some moves in the outstandings and on the level of margins. And as we come closer to the end of the year, we have a clear view on the end of your estimates. So we are more comfortable with disclosing above 20%, which will not be far from 20%.

The next question is from Pierre Chedeville with CIC.

Yes, on -- before asking my two questions, I would like to make a remark regarding the quarterly series. I think it would be useful for us to have a subtotal in the French private banking -- subtotal of French Retail and Private Banking and then Insurance, it would be much more easier for us. And also regarding leasing, mobility and consumer credit, I don't understand why you don't isolate credit consumer because now you decide to speak about that. So once again, it would be useful for us because it's a big chunk of the 3 business, which are quite different. My two questions now. The first question related to the insurance business. We can see that casualty is working quite well, but protection is quite stagnant. And I was wondering if you had ambitions regarding protection because it's a segment that works very well actually in France. And it's something maybe you could tell us about your ambitions regarding protection. And it will be also useful if you could give... [Technical Difficulty]

We can't hear you anymore, and it's not us.

Mr. Chedeville Your line is open. The next question is from Anke Reingen with RBC.

I'll be quick and hopefully, if I can come back. Just on the transformation cost, it'd be helpful to be able to see the underlying progress and the cost development. And therefore, could you maybe give us by division, the transformation cost at the 9-month stage? And do you have any more visibility on transformation costs in '2024? And then just one housekeeping from the Capital Markets Day. In terms of the Basel IV impact, the 85 basis points, can you split it down by division, please?

Thank you. I'll leave the floor to Claire on both, but also we can potentially have a follow-up later on with the teams just not to spend too much time on this, but Claire.

Yes, I will answer this to your first question because I'm not sure I have heard your second one. So regarding CTA, I understand that you want the breakdown per division of the EUR 145 million we had this quarter. It's exactly EUR 46 million for the French Retail, EUR 41 million for GBIS and EUR 68 million for the last pillar of which [ EUR 48 million ] for ALD. Regarding the full year guidance, we had guided this year on around EUR 800 million CTA for the year. So we confirm at that stage this guidance. And regarding '24, it's a little bit early to guide. We had explained during the Capital Markets Day, I think so that a significant part, most of the CTA for the '24 to '26 period of time would be booked in '24. It will be the case that we probably will guide more as usual during the last quarter, and we never do that during the third quarter.

The second question was the 85 bps of Basel IV impact we discussed at CMD per business.

Yes. So at the -- at the CMD, we had guided on 85 basis points, I'm sorry. We do not disclose at that stage the impact per business. But what we do is that we disclose a breakdown the type of impact. And if I may say, when you have the type of impact, it's quite easy to link with the businesses, but that's my personal point of view. The impact is 40% related to market risk. 45% related to operational risk. And as you know, it's a formula, it's 10% CVA and 5% credit risk. So this being said, I'm quite comfortable of potentially new capability to have the breakdown per business, but we will guide more precisely before the impact.

Okay. Looking for the 9 month transformation cost by division, but I will follow up with IR to keep this going.

Okay. Okay. But I can give you the 9 months, EUR 330 million French Retail, EUR 102 million GBIS; EUR 195 MBS, of which EUR 168 million ALD.

The next question is from Vijayarajah Kiri with HSBC.

Yes. Just 1 question left on my side, mainly for Slawomir, I guess. So look, when you look at the ALD share price, unfortunately, only seems to move in 1 direction at the moment. But at what point do you say, look, enough is enough and think about delisting ALD and taking it private again? Clearly, you think it's a great business, but the market doesn't really agree. And of course, as you show in your own numbers, ALD is accretive to your SocGen group's ROE. So why not think about increasing your exposure to that, particularly as you can pick up the minorities now at a chunky discount to book value? So just your thoughts on that, please Slawomir.

Listen, I'm an investment bank, right? So you're describing a financial equation, which obviously is theoretically interesting. Now the reality is in my own view, the long-term prospects for growth, profit generation, ability to be an actor of fundamental transformations of Mobility. Obviously, not just actors for the sake of it, but in terms of further ability to grow and to generate good profitability. Our prospects, which should be in the long term, mid- to long term, attractive to potential ALD shareholders or Ayvens shareholders. And in the sense, I think we had that intuition a few years ago to list this company to help it grow. And I think the growth story is still compelling. Right now, we have noise because of the integration and a number of exceptional items. We have noise because of the guidance adjustments, et cetera, it's all fair but the story is compelling, and it's going to be compelling for Ayvens shareholders. And right now, there's no project to change anything in the structure of the group from this perspective.

The final question is from Jacques-Henri Gaulard with Kepler Cheuvreux.

I have two, maybe three very quickly. The first one, obviously, this Capital Markets Day was humbling for me personally, to be honest, and for the sell-side, I guess, also a little bit as a whole in terms of stock price reduction. Did you draw any lessons about what happened there at management level and can you share it with us? The other two is to come back to what Pierre said on ALD and for the forecast, I want to make sure I understand that I should not account for used car sales for LeasePlan until year end, is that correct? And then resume used car sale forecasting in 2024. Is that the right way to look at it? And lastly, on the Corporate Center, the negative impact from the change in market value of replacement swap, is that recurring next year at all? Is there any way to -- or it's something we can drop.

Thank you for your questions. I'll start with the one that is for me. I'll leave the floor to Pierre for the Ayvens, and then quickly to Claire on your last one. So I mean, it's not my job to be delivering market commentary on why things happen, et cetera. What I can tell you is, I feel and I think that was well understood very strongly together with the team and the Board about the road map we designed. It's the right 1 for this company at this point of its history. It's going to make it stronger and more sustainable in the future and delivering levels of reported performance in terms of absolute level in volatility, which will be a massive improvement from our recent track record. And from this perspective, our objectives, I think, are very clear and very good for the company and for its long-term shareholders. And the means that we decided to use to reach this objective, which is a mix of -- I'm not going to do the CMD again, but of moderate growth in terms of organic RWA, cost reductions, sound capital management, et cetera, are, again, I think the ones we had at our disposal. And we chose the mix between the contribution of everybody, basically, the company, the businesses, the -- in terms of cost reductions, et cetera, the shareholders in terms of some minor adjustments to distribution policy. And I think it's the right thing to do, right? And then it's our job, and it's only fair from the investor community to wait or to see how we're delivering quarter-by-quarter on our road map and to expect from us high level of high-quality delivery, right? And that's what we're focused today, and that's how we think about it, right? And then market dynamics over 1 day, I mean, we could discuss all the things that happened in the market in the recent days. I mean, I'm not sure you can always make sense of the short-term reactions of the market. We are focused on the substance, and we will deliver our road map. In terms of ALD forecast, Pierre?

I think the question was about the used car sales, the accounting for used car sales profit regarding LeasePlan. So the answer is that, yes, until we go to the end of the PPA, the fleet of this spend is going to be accounted for at share value, and therefore, we are not going to account for used car sales profit until the end of the year and then progressively going forward, we will account for used car sales profit as they occur.

Claire?

No, regarding the corporate center, we do not guide for next year.

So we have Pierre back. So we have his first question, we're ready to hear the second one.

So the very last follow-up question is from Pierre Chedeville with CIC. Mr. Chedeville, we can't hear you, maybe Your line is on mute. Maybe you muted yourself. Please check your microphone.

All right. Let me do the following, right. First of all, Pierre had two comments or requests. They are well noted, although we have an approach in disclosures, and I'm not sure we're going to change everything. Just based on his request, but we'll take note of it, and we'll give it some thoughts. In terms of your first question, I'll leave the floor to Philippe, at least he will have the transcript in terms of the protection part of the insurance business, what are our ambitions and expectations.

So yes. So as you know, I think we can say that life insurance, it's part of our DNA for a long time. That's true that regarding protection, it's still an area where we have room for improvement. And we know that it's very important to provide these products and services to our clients. As mentioned during the Capital Market Day, that's 1 of our objective to fill the gap because there is a gap in protection equipment. So our insurance company is working in full collaboration with the networks. And I think we have now a competitive offering. We have also increased the digitalization of the customer journeys, and we are reinforcing the training efforts of our sales forces. And simultaneously, we are also leveraging the platform of [indiscernible] to sell directly this project to the clients of the network, but also to all the clients. So definitely an area when there is a momentum and which would contribute to our trajectory in the coming years with over time being [indiscernible] still a gap. And again, we are targeting significant progress in this area.

So lots of ambitions and bringing the two businesses together closer was part of addressing the ambitions we have there. Thank you very much. Thank you for joining the call and all your questions, and have a nice afternoon. Bye-bye.

Ladies and gentlemen, this concludes today's Societe General conference call. Thank you for your participation. You may now disconnect.