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Edited Transcript of GLE.PA earnings conference call or presentation 1-Aug-19 9:30am GMT

Half Year 2019 Societe Generale SA Earnings Call

Paris Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Societe Generale SA earnings conference call or presentation Thursday, August 1, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Frédéric Oudéa

Société Générale Société anonyme - CEO & Director

* Diony Lebot

Société Générale Société anonyme - Deputy CEO

* Jean-François Grégoire

Société Générale Société anonyme - Head of Global Market Activities

* Philippe Aymerich

Société Générale Société anonyme - Deputy CEO

* Séverin Cabannes

Société Générale Société anonyme - Deputy CEO

* Philippe Heim

Société Générale Société anonyme - Deputy CEO

* William Kadouch-Chassaing

Société Générale Société anonyme - Group CFO

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Conference Call Participants

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* Azzurra Guelfi

Citigroup Inc, Research Division - VP

* Flora A. Benhakoun

Deutsche Bank AG, Research Division - Research Analyst

* Giulia Aurora Miotto

Morgan Stanley, Research Division - VP and Equity Analyst

* Guillaume Tiberghien

Exane BNP Paribas, Research Division - Head of the European Banks Team & Analyst of Banks

* Jacques-Henri Michel Gaulard

Kepler Cheuvreux, Research Division - Head of Banks Sector Research

* Jean-Francois Neuez

Goldman Sachs Group Inc., Research Division - Executive Director

* Jonathan Matthew Balfour Clark

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst

* Kirishanthan Vijayarajah

HSBC, Research Division - Analyst

* Lorraine Quoirez

UBS Investment Bank, Research Division - Director and Equity Analyst

* Maxence Patrick Patrick Laurent Le Gouvello du Timat

Jefferies LLC, Research Division - Equity Analyst

* Omar Fall

Barclays Bank PLC, Research Division - Analyst

* Pierre Chedeville

CM-CIC Market Solutions, Research Division - Analyst

* Stefan-Michael Stalmann

Autonomous Research LLP - Partner, Swiss and French Banks

* Tarik EI Mejjad

BofA Merrill Lynch, Research Division - Equity Analyst

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Presentation

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [1]

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Welcome to the presentation of our second quarter and first half results. As usual, we'll try to be as short as possible with William Kadouch, our CFO, to present the figures and then enter into our Q&A session with all our management team. Let me just start saying a few words before leaving the floor to William.

I will start Page 4 with the main highlights of the first half and second quarter. Clearly, the first thing I would like to highlight is that we are fully on track to deliver on our capital trajectory. You see that our core Tier 1 stands at 12%. It's up 52% -- 52 basis points, sorry, in the second quarter, reflecting of course the benefit of our earnings, in line with expectations, a strong discipline in risk-weighted asset consumption, better leveraging in CIB and of course, further progress in our refocusing program. We'll come back to that more in detail in the presentation.

The second element is that our underlying net income for the quarter is solid at EUR 1.2 billion, with business revenue stable at constant perimeter and resilient profitability of 9.7% return on tangible equity.

The third thing is that the risk profile of our group remains strong. The commercial -- the net cost of risk remains low, 25 basis points for the quarter, 23 basis points for the first half. And as you can see, there is a further decrease of the NPL at 3.4%. Overall, the market -- the rates also remain under constrained, and the balance sheet is very solid, as you will see later on.

Let me turn to Page 5, just to highlight beyond the financial statements we are going to comment and focus on. I would like to emphasize that we are moving forward to accompany our clients in their fundamental transformation as well as changing and, I think, which is important to anticipate. Clearly, on this slide, we show that on the climate, we are moving forward with, first of all, a very strong delivery regarding our commitment to finance renewable. We have this EUR 100 billion target between 2016 and 2020. Let me just say that in this second quarter, we had senior mandate on 14 green and sustainable bonds, accompanying our clients everywhere in the world. I will highlight, in particular, the first ever green bond issue in euro by Chile in the Americas. We are also developing innovative solutions. For example, we have issued a EUR 1 billion positive social impact bond to finance [holdings] for carbon-efficient buildings. And we are -- and we have a strategy to exit coal finance by 2030 for the clients which have assets in Europe and OECD countries and by 2040 with the other regions.

Beyond everything which is done on the climate, I could also highlight what we are going to do with the shipping industry, where we are promoters, and we have signed the so-called Poseidon Principles to reduce the emission of the different container ships. We are also engaged in Africa. As you know, the recognition of us, being the Best Bank for Corporate Responsibility with different dimensions. SME financing, microfinance, women entrepreneurship and staff diversity is also aligned with our strategy as well as get ready to take the opportunity of new business -- new business activities in Advisory & Financing regarding the establishment of smart city in the world.

Now I will turn the floor to William, so that we enter into more detail on our results.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [2]

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Good morning to all. Thank you for the Frédéric. I invite you to go straight to Page 7, where we highlight, as we do know, every quarter, the key performance of the 5 main divisions of the group, including Corporate Center. Starting with the group headline numbers. The group underlying net income stands at EUR 1,247 million which is consistent with the 9.7% ROTE to be compared with our target of 9% to 10% ROTE by the end of 2020. The reported number is EUR 1,054 billion or 8.3% ROTE.

Looking at the divisions, what is our key in French Retail is, revenues are up this quarter, year-on-year, 2.1%. Costs are very well contained. They're on track, decreasing by 1% year-on-year this quarter, although we continue to implement our transformation plan, and as you know, invest in the development of our fully digital bank, Boursorama. All in all, our French Retail Banking division exhibits one of the very best return on capital in the country, with 12.6% return on normative equity.

Turning to International Retail Banking, another very strong quarter. Revenues adjusted for foreign exchange and perimeter effects are up 7% year-on-year, 7.5% in the first half related to the previous -- same period of last year. This is a combination of volume growth and pricing. We have positive jaws in International Retail Banking, and we continue to deliver a very solid profitability at 7.1% (sic) [7.0%].

Same with insurance and financial services, financial services encompassing, as you know, ALD Fleet Management as well as the [SG] Equipment Finance. The return on normative equity is up close to 200 basis points to a very good number of 21.3%. revenues are up 3%.

In Global Banking and Investor solution, we are in the midst of executing our restructuring plan. I think what is key to highlight is the fact that, in this context, we managed to get a double-digit return on normative equity on an underlying basis of about 10%, thanks particularly to a very good cost control. I will come back to that later. But the underlying cost of CIB are down 5% relative to Q2 2018 this quarter.

Finally on the Corporate Center, we have a gross operating income of EUR 38 million of the first half. It's a negative minus 75. Allow me to address here the key one-offs we have in the quarter, you should take into account on the negative side, given the provision for restructuring in CIB as well as IBFS and the cost of integration of Commerzbank activities, a negative impact of about 280 -- excuse me, EUR 227 million plus EUR 29 million plus EUR 21 million, which we have on the other side; on the OpEx side as well, a positive impact, which is a reversal provision for operating taxes of about EUR 241 million in the Corporate Center. So you see the negative a little higher than the positive.

We wanted, which is highlighted on Page 8, to come back to the fundamentals of our business model and the split of activities in the context of the low for long rate environment debate. We are convinced and this is already part of our trajectory that the rates will stay low for certain period of time. Now it's clear that the key assumptions that many operators make is that they will be there for a very long time.

In that context, we wanted to remember everyone that the proportion of our revenues that is directly impacted by the rate environment in the Eurozone, is about 10% of the total of our EUR 25 billion in revenues, namely as you would expect, this is the margin on deposits, and this affects logically, mostly, our French retail activities. We've already given you, by the way, as you know, some sensitivities around the rate development and what it translates into in terms of revenues. All the other revenues of the bank is not impacted or very indirectly impacted. This is notably the 55% of our revenues at group level that's derived from noninterest income. This is a 37% of the net income -- net interest margin that we generated outside of the eurozone, 16% of group revenues. And generally speaking, the margin of loans be it in Financial Services, be it in Structured Finance, or in French Retail Banking or International Banking at this matter is not very sensitive to the competition and margins. And our margins, we can say after -- that being said, we are aware of the pressure of the adjournment as a rate of macro and we work further on cost, which is what we highlight on Page 9.

You may remember, we had announced at the end of 2017, an efficiency plan equivalent to EUR 1.1 billion gross reduction in OpEx. We have already achieved 50% of that 1.1 bil efficiency plan to date. We have added at the end of the fourth quarter 2018 another layer of EUR 500 million revolving around the CIB and we are starting the execution, so far, it goes according to plan. So we are very confident that EUR 1.6 billion will be delivered by the end of 2020. As you could see, we already have a very positive dynamic on the cost containment in French Retail, as well as CIB on top of still having positive jaws in IBFS.

I would like to touch a word -- say a word on cost of risk, we remain with a very muted cost of risk, actually, one of the very best industry in Europe and certainly in France. The cost of risk -- commercial risk in the first half of 2019 is a 23 basis point -- 25 for the quarter. It is very consistent, actually lower than our guidance for the year of 25 to 30 basis points, despite the fact that, as you can see in French Retail Banking, we have some specific size. Some of it being [very, very shared] in France by all the banks. Otherwise, it's very contained in the International Retail Banking and Financial Services, where it is pretty flat. The nonperforming loan ratio continues to decrease this quarter, again, at 3.4%. That, combined with gross coverage rate of 55%, which is one of the very best in the European industry.

One of the key objectives we have is core Tier 1, and one of the key highlights of the quarter is, logically, the fact that we managed to increase, again, the core Tier 1 ratio this quarter by a significant 52 basis points. In total, in the first half, we will have increase the core Tier 1 by 106 basis points. This is equivalent to date, to a 213 basis points of MDA. You remember that our target is to be, at any point in time, around -- running the company with a capital ratio that is consistent with around the 200 basis point buffer of MDA, and we are approved this quarter. In addition, you can consider that we will have, for sure, in the next quarters to come, 20 basis points more stemming from, especially, the refocusing in the disposals. So the pro forma ratio is at 12.2%.

As far as the other ratios are concerned, they are all up and strong. Leverage ratio is up at 4.3%. TLAC ratio is up, again, at 25.8%. Let me remind you that the requested capital TLAC ratio is 19.8% in '19 and should be 21.8% in 2022. It means that we fulfilled the ratio by far. On the [end-June of date], we are already MREL compliant, as you know. The liquidity ratios have all improved. Our liquidity buffer is up EUR 11 billion at EUR 188 billion, and we've already achieved close to 70% of our funding program, which is the vanilla program is only 75%, which leads me to the next page, which you will remember, refers to the page we had shown you in Q4 2018. And it's the page that describes where we stand in terms of building the capital towards having a significant buffer above 12% in 2020. This capital work, we had shown you in Q4, obviously, a lot was to be done. What you would find in this chart in pink color is what we have already achieved. So you can see that we have already achieved 28 out of the 50 basis points of organic capital to be generated. We have already achieved 15 basis points out of the 25 basis points of global market RWA reduction. Let me give you a number, we've managed to execute close to EUR 5 billion of the EUR 8 billion global market RWA deleveraging. EUR 8 billion is due by '20, where the EUR 5 million in H1 [2019] (corrected by company after the call).

We have already started other type of optimization. Refocusing program is very well on track with 47 basis points out of 80 to 90 that you know. And we expect on the headwind side, the notification of the bulk of the TRIM impact towards the end of the year (inaudible) 12.4%, 12.8% estimated core Tier 1 by 2020, which is up from what we had shown in Q4, this was 12.3% to 12.7%. Let me stress for the avoidance of that, that this is consistent with the payment of the cash dividend, based on the 50% payout ratios for the period.

And only not to spend too much time on page -- on the next page, Page 13. We will leave it to questions. You will have noticed that this is the first time that we implement the amendment to the IFRS 12 accounting regulation, which doesn't change anything with regards to the way you can look at the key ratio, ROTE or EPS, but happy to answer to any questions.

I would like now to turn to the business performance starting with French Retail and the commercial performance of French Retail. We continue to see very positive commercial developments in that area, starting with individual clients, we will give you some figures. The loan outstanding are up 3% year-on-year. So we continue to have still good production, particularly in consumer credit and also home loans.

Bancassurance makes further progress this quarter. Life insurance outstanding are up 1.5%. The P&C, Property & Casualty premiums are up to 7% in the quarter. As you know, this is a key element for strategy to catch up in Protection and Property & Casualty in terms of penetration of our client base.

Private banking activity is very positive again with net inflows up EUR 1.1 billion. And generally speaking, the wealthy and mass affluent client base is again up this quarter by 2%.

Boursorama has another record months. We took [137,000] (corrected by company after the call) new clients for Boursorama, which leads Boursorama to a 1.9 million client base. Let me remind you that the objective that we have set forth for Boursorama was EUR 2 million by 2019. So we are very confident, we will overachieve -- we will over deliver.

On professional and corporate client, they are again, our core client base we target as far as Société Générale networks are concerned. We make good progress. The medium-term corporate loans outstandings are up 8% year-on-year. And we have done business centers.

Let me say a word on the transformation beyond the commercial activities. I'd like to come back to what we had committed to in terms of closure of branches. From 2015 and 2020, we have committed ourselves to execute the closure of close to 18% of the number of branches. We have done it to -- we have achieved 13.4% closure from 2015. We are mid-2019, we still have 1.5 years, so we are very much in line on track with plan.

On the French results, so I won't be too long. What you can see is a good EUR 356 million net income for the quarter, combined with a 12.6% return on normative equity, which is a context, I would qualify as reasonably healthy. Even, again, the fact that we still invest in Boursorama, that means that the return on normative equity of the traditional networks is higher by definition. Revenue are up 2.1%, very positive spot on the net interest income which increased 1.7% this quarter relative to the past year. This is a second sequential increase in the NIM in the French Retail networks, and the first that we've seen in a few quarters year-on-year.

Fees are less timing this quarter, particularly given the impact of the so-called yellow jacket measures. We have talked to you about this, and this obviously affects -- impacts the service fees. The cost decreased by 1%, already mentioned, which is a good performance.

Turning to the performance of International Retail Banking. There is a new information we provide here to you, which is on top of the projection that leads to the increase of the net interest income. You'll see a very good figures, plus 6, plus 7%, plus 4%, depending upon the region. We can provide you some numbers as to the progress we make in terms of generating commission and fees in those regions, where we start with, obviously, a lower base, and then commission spend to increase when the market matures, provided that you have the right commercial setup. You can see an increase of 6% corrected for perimeter and change effect in Europe, plus 22% in Russia, plus 7% in Africa, which obviously is a good sign for the future. Overall, net income is EUR 297 million for that division, and the return is high at 17.1%.

We'll give also some key data on the insurance, as well as financial services. The life insurance outstanding are up 4%. Protection premium are up 12%, revenues up 4%. And given the numbers I have given you for the French market, that means that in other jurisdiction in all the country where we have commercial banks, we're able to have double-digit increase across the board.

ALD fleet is up 7%. I refer you also to the publication of ALD results today. SGEF had a very good quarter again, plus 3% in the lease outstanding, plus 11% in revenues. Overall revenues are up 3% in the quarter for those businesses. Group net income contribution is EUR 237 million, which means a return on normative equity at 200 basis points, roughly at 21.3%. But overall, what you can see is still that IBFS is a key growth driver for the group and a key profitability contributor for the first half of the year. The IBFS contributed a good EUR 979 million, let's call it, close to EUR 1 billion to the net income of the group. The return on normative equity is 18.6%, which is very consistent with the ambition to be between 17% and 18%, as you can see, this is above. So if the underlying is 18.9%, the headline is 18.6%. So it's still above that 17% to 18%.

One thing I would like to point you to, you will see on these numbers that apparently operating expenses grew more than net banking income. You have to adjust this number of OpEx for the provision for restructuring, we take on the headquarters of the IBFS activities, which is EUR 29 million. Should you make that adjustment, you would find that in Q2, revenues are up [5.7%] (corrected by company after the call). OpEx, [4.6%] (corrected by company after the call) in H1, respectively, 6.1% and 5.1%. I reiterate that we still have positive jaws, and we will continue to have positive jaws in that area.

So on a strong Financing & Advisory, resilient global market, as you can see, (inaudible) another months where we have this contrasted performance with some improvement, though, including on the market side. Financing & Advisory is evidently strong. We had plus 10% revenue growth in the first half relative to the previous -- for the same period of last year and plus 3% year-on-year in the quarter. You can see that beyond the traditional strengths of structured finance, we also have very good performance in transaction banking, with revenues up 19% this quarter year-on-year.

On the market side, this is obviously, more contrasted. Although, this is very much in line broadly in the market, minus 9% of Global Markets and investor services revenues. We have here FICC revenues down 10%, but sequentially up 16%. Equities revenues are down 7%, which is better. We think that most of the peers are consistent with our strategy in terms of focus and products, and revenues are up 4% sequentially. We may come back on that, if you -- should you have questions. We are very much on track with regards to the integration of Commerzbank activities.

We wanted, as we are in the midst of it, to update you on where we are on the restructuring. I already mentioned the provision. We, obviously, are in the process of closing our portfolios in commodities as well as prop trading and some of the client adjustments in the prime brokerage, et cetera, that we have announced, nothing to mention particularly there, it was on track. The cost plan has been launched in every jurisdiction applicable and the process started. We have no reason to doubt that it will bear the fruit as expected.

The provision, I've already talked about it. the deleveraging as well, we executed 4.9 billion out of the EUR 8 billion that we have committed to by 2020, which makes us confident. We will be there probably earlier, by the way, than 2020. And as a result, in a nutshell, you can see -- and we start with this, that even in the context of still muted market environment and still decrease in the revenues of market, even in the context of being in the midst of restructuring, we have an underlying return that goes back to double-digit figure at 10% for the quarter, which is okay, in the context yet, not being on target with what we want.

Particularly, I'd like to point you to the operating expenses. You will see on the page, minus 3.5% based on the adjustment for the restructuring provision. Should you, in fact, take into consideration also beyond the accounting provision, the expenses due to the cost we achieve on our plan of restructuring and add the EUR 21 million of integration costs of Commerzbank, the total would be rather in the area of EUR 260 million to be deducted, which means that the underlying cost base of GBIS is effectively minus 5%. So it's a good sign about our commitment to work hard on cost.

Finally and rapidly on the Corporate Center, we have a EUR 38 million gross operating income. it's a plus. And for the first half, minus EUR 75 million. I've already alluded to it, it's impacted positively by an adjustment in operating charges due to operating taxes and it is negatively impacted at the net income level by EUR 84 million, given the IFRS 5 impact on the refocusing program. As mostly of you know, as Delphine and her team disclosed it when -- as the case. Thank you. Fred?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [3]

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Thank you, William. Let me just conclude with the last slide, just to emphasize that we are very confident to further deliver in the coming quarters on this trajectory with a lot of discipline on the execution on the different items. William has highlighted the dynamics of the businesses, we will get further benefits of the different initiatives in terms of cost, in particular, the adjustment of the setup in GBIS in the coming quarters. On the refocusing, I can already add the [2] basis point on the disposal of PEMA, which was signed in July, and it's not in the 47 basis points, but beyond the other processes have been launched.

And of course, as I said on the responsibility, we think it's very important in our long-term to keep the confidence of our clients and stakeholders of all kinds. And we are also here, very successful, and we see that the business opportunities beyond, of course, providing added value to our society. So we are delivering. And I just like to conclude by saying that we will propose to you detail on our international Regional Banking businesses and financial services, which I consider as a core assets, in particular, in light of the developments in the Eurozone on the interest rate, which in doing as we have been discussing impactful Eurozone retail activities, having the benefit of this presence in geographies with much more normal, if I may say, interest rate, good economic prospects, with mature banking markets, and with a very significant presence in leading -- sometimes leading [countries] will lead us, I think, to success and should give you confidence in the coming quarters. And also -- On that point, the presentation is completed. Now let's turn to the Q&A session. [Operator Instructions) So the floor is yours.

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Questions and Answers

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Operator [1]

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Our first question comes from the line of Stefan-Michael Stalmann of Autonomous.

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Stefan-Michael Stalmann, Autonomous Research LLP - Partner, Swiss and French Banks [2]

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I have 2 questions, please. The first one on your rate sensitivity, that's a very helpful disclosure, that you gave, 10% of group revenue, which is about EUR 2.5 billion of revenue, and you had about EUR 200 billion of deposits in French Retail, and let's say, you have a couple more elsewhere. So that means you're still generating a margin on your Eurozone deposits of about 1% to 1.5%. My question is, how conceptually, do you calculate this margin? And related to this, how sustainable do you think this margin is, given where risks on rates are pretty much across the curve in many countries in the Eurozone?

And the second question regarding the EMC transfer, thank you as well on the guidance here. Is it fair to assume that you have transferred roughly EUR 1 billion of risk-weighted assets and roughly EUR 50 billion of [prudential] balance sheet so far?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [3]

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Stefan, I will leave the floor to Séverin again to confirm the impact of the beginning of the integration of the EMC. On your first question, let me again just reiterate the sensitivity of our revenues towards the movements of interest rate, if you have a decrease of the churn by 10 basis points, it is roughly EUR 60 million. And actually, 80% of that is in the French Retail. After this again was the definition of the interest margin on deposits and credit. It's part of the ALM , and through the modeling, but I think what you should look at is the sensitivity. And what is clear this quarter, as William said, is that with this positive evolution of the net interest margin, still with an erosion of the interest margin on deposits, but at lower rates and a positive contribution of the credit, I think reflects what we have said in the past, progressively less impact, and you have the sensitivity. Séverin, can you comment on the EMC, please?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [4]

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Thank you for this question. As you know, the EMC business is comprising 4 activities. And the process of integration, has just started during the second quarter, importantly, so as you know, the 4 businesses where, first, what we call investment product, meaning types of products which are being run our core franchise. Second, we have to freeze those products, (inaudible) , which are mainly in Europe, in Germany, as you know. We have market making activities and the asset management. So what we did during this quarter is mainly on the investment project transfer and on the ETF for the asset management part. The impact of this has been over the quarter. So at the end of the quarter, the impact in the risk-weighted asset is EUR 1 billion. I am not sure, Stefan, what you had in mind, you mentioned on -- that the total size of the balance sheet impact of [EUR 50 billion], I don't understand this figure, Stefan.

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Stefan-Michael Stalmann, Autonomous Research LLP - Partner, Swiss and French Banks [5]

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Yes. Sir, basically, just looking at the evolution of your fair value assets during the quarter. It seems there's maybe a bump of around EUR 50 billion that might be problem attributable to the EMC? But maybe that's wrong.

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [6]

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No. No. I am not sure what is that, so I have to confirm this figure, but in my mind it is between EUR 5 billion and EUR 10 billion in terms of total asset impact on the transfer of the portfolio of the major project of EMC. And second impact you see is on the ETF side, you have, in terms of ETF assets under management evolution, EUR 12 billion increase, which is unrelated to the EMC transfer. In terms of P&L, the impact on the NBI is very limited on the second quarter. And you have, on the other hand, the cost of integration, which has been mentioned by William, which is a negative impact on the P&L for this quarter.

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Operator [7]

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Next question comes from the line of Giulia Miotto at Morgan Stanley.

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Giulia Aurora Miotto, Morgan Stanley, Research Division - VP and Equity Analyst [8]

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I have two. So the first one is on Slide 12, which is very useful. So the capital impacts are very clear. Can you just please remind us what the associated P&L impacts are of the disposal of global markets and the refocusing program. So what is already in the numbers? And what we should be expecting? And then the sensitivity on NIM that you provided is very helpful, the EUR 60 million for 10 basis points. I was just curious, you mentioned that in France, corporate margins are actually going up on Slide 7, but then when I look at the publicly disclosure for Central Banks, it looks like the front book is well below the back book. So how is it possible that the margins are actually seeing a good trend when it comes to corporate?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [9]

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Yes, Giulia, I will turn the floor to [Séverin] on your first question, and if Philippe, make in charge of the French Retail. It's hard to say, again, things are improving the little bit on the corporate side. What I'd like to highlight, in particular, just as an introduction to the answer of your question,. If you see the -- really, the kind of policy we are pursuing, being selective in the mortgage, trying to really originate mortgage for clients, which, in our view, will provide going forward throughout the site business, in particular, on the saving. And as you know, my conception of the evolution of the market, if we get the heart of the relationship and we are more dynamic, of course, on the corporate side, where we see that disruption going forward. And of course, with a fundamentally shorter-term loans or capacity to reprice GDP with mid-term loans, which are between 3 and 5 years. In an economy where I would like to highlight the dynamism of the investment by corporates, which was concerned in the second quarter, so I think, it's really a good policy, which helps maintain this profitability. And now Séverin on the overall impact of our restructuring. And then Philippe, if you like to comment a little bit on the markets.

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [10]

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So on the revenue side, because as you know, William made a comment on the cost side. So as you saw, in terms of deleveraging, we delivered during this quarter -- during the first half, sorry, near EUR 5 billion -- almost EUR 5 billion, EUR 4.9 billion in terms of risk-weighted assets deleveraging in the Global Market activity, but also deliberately in our Financial and Advisory activity.

So globally, the impact is mainly driven by the [CET1] principle strategy we started this quarter and the stop of prop trading activity. But globally speaking, the impact is not significant in terms of revenue, but it's done. The good news is in our -- part of our deleveraging is coming from our branch services, risk-weighted assets consumption with a very limited impact on revenue. There is also some impact on the Financial and Advisory -- The Financing & Advisory division because we have to reduced our corporate lending as capital allocation, which have an impact on the top line. So globally speaking, the impact is some tens of million of euro this quarter compared to last year.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [11]

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Thank you. Philippe, on the margin in France?

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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [12]

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Yes. And...

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Giulia Aurora Miotto, Morgan Stanley, Research Division - VP and Equity Analyst [13]

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Sorry, if I can -- can I just follow-up on that. And looking forward, when we think about the disposals that are yet to come, and not just in Global markets, but also part of the refocusing program, And what's the profitability impact of those?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [14]

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Listen, William will comment on the existing -- already signed transactions. And generally speaking, for the coming transactions, the further disposal. Let me just highlight fundamentally, the idea is to improve the profitability. So no deterioration of profitability to be expected from these further disposal and the capacity on the contrary to concentrate our resources on more profitable business.

And I think that the figures of international retail and financial services reach like that. You know that some businesses have been sold, the banks on Balkans, Bulgaria and Poland, but it does not, of course, on the contrary, benefits to the results. Now perhaps on more granular information, William, can you comment on that.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [15]

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We have given you some impact in the previous quarter, but we had announced at the time, we said it would be equivalent to EUR 125 million, net income gross. And we only took net income, that's easier for you to deduct. With all what we have announced, i.e., the close to 50 basis points out of the 80 to 90. We are having -- we are expecting an impact of about EUR 190 million total net income, we have already taken this impact in our numbers. Because if you look at what we closed already, you see the equivalent of EUR 70 million, which are already in our numbers. So gradually, basically, this force includes the numbers. So 119 -- 190, 9-0, out of which 70 are already in that number.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [16]

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Philippe, again, what we see on the French market in terms of margins?

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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [17]

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Yes. So first, coming back on on the deposit. It is still very important to mention that we are closely monitoring the values, making sure that we are seeking deposits with the key clients. And I also like to mention that we have adjusted our pricing. I mean, interest paid to the client, not to be for corporates or financial institutions on termed deposits, so it contributes also positively. And regarding the loans, we continue before our origination strategy for focusing both for entrepreneurs and for professionals and for corporates on -- our targeted clients. The values have been quite good. I mean in the quarter, as explained by William. And also, we have been able to closely monitor margin and the significant pressure from competition. But we are, again [adjourned] very closely all of that. Again, coming back to the deposit margin. I think it is important also to mention that we have an increase when compared to the first quarter by 1.4%, so which means that we are -- we consider that we are definitely on the track.

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Operator [18]

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Our next question comes from the line of Jean-Francois Neuez of Goldman Sachs.

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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [19]

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I just wanted to come back on the interest rate sensitivity? The first question. So the -- if I mechanically apply EUR 60 million to the assumption, which you had provided and the time you had 30 bps for Euribor in 2020 and [1.8] for the OAT decision. And this was already consistent with the reduction of revenues grew to EUR 500 million, like if the futures is at minus 50 basis points for Euribor, is it okay to just multiply the EUR 60 million by the 70 bps also difference that we can see in rates? Or is it not working, it's not linear?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [20]

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Jean-Francois, it's not necessarily that linear. But it probably is a certain order of magnitude, William?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [21]

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That's not as linear, but because you have to look into more in details as to which part of the portfolio is being renewed. That being said, this is not the best approach. This is why we give sensitivity, effectively for the year 2020. We had said we would be in average in aggregate to about plus 20 basis points for the short-term rate through the year.

Clearly, if you were to take the follow-ups today, and you take the difference between a 20 and the number of delivered were the (inaudible) multiplied by the sensitivity, you probably get a gross number, which is not absorbed, then it's obviously pretax and that does obviously, not assume all the things we [made]. Let me remind you that this is pretty much in our sensitivity. The reason why we have given the range is precisely because we are lower with self around the central scenario to have some sensitivities, including some negative sensitivity, so that's why, Frédéric comments on the fact that this is not being beyond the technicalities, some of it is already somewhat encompassed into the low end of the range we've given you in terms of profitability for the business.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [22]

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And let me just highlight, Jean-Francois, also that I see as a positive development, the recent comments of the ECB. Now, on -- you know the idea of the kind of tiering, et cetera. I think there's a growing understanding of the impact on the profitability of European Bank, by the ECB of this situation, which might last longer than expected. And also what everybody had in mind, an increase of rates. And so we see what kind of development we could have, but I think it's something positive that the [true lines] have been written and said on the recent press release and communication.

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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [23]

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Okay. And my second question was on the cost in capital -- in CIB. I just wanted to understand, of the EUR 500 million of cost saves. So already, there has been a decline in the underlying run rate of cost this quarter. I just wanted to try to understand how many of the staff you thought you'd, let's say, let go -- you've let go so far? Just to try to understand what's left of the savings going forward because it only says that you've only started in outside of France, there is still France to go and so on, so I get the feeling there might be some legs to this?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [24]

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Yes, absolutely. Jean-Francois, the bulk is not yet now in our figures. Séverin , can you give some kind of estimate?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [25]

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What I would do, if I mention, Jean-Francois, if we come back to the commitment to be below the EUR 6.8 billion next year. Tomorrow, the plan has been implemented, not in France, as you know, which is roughly 50% of the staff cut provision is in France, and we have not done anything in France because we have started only in July. So what we delivered up to now is a part of the 50% which are out of France. And -- but the real point, is we are on track to deliver the commitment we took next year, and it's the important point to have in mind.

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Operator [26]

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The next question comes from the line of Flora Benhakoun with Deutsche Bank.

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Flora A. Benhakoun, Deutsche Bank AG, Research Division - Research Analyst [27]

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The first question is regarding the French retail commissions. If I would adjust for the EUR 61 million that you mentioned this quarter. I would get to commissions that suddenly collapse, I mean, this quarter, especially on the service commission side. It's an almost 9% decrease year-on-year. So I just wanted to ask, first of all, whether you could elaborate a bit on the reasons around that?

And the second question is regarding the FICC revenues. When we look at it on a year-on-year basis, it's pretty okay, actually maybe even pretty good considering the deleveraging. But when we look at it on a Q-on-Q basis, so compared to Q1, you are the only bank so far, seeing such a big increase versus Q1. So the question is really what drove the difference between what you printed in Q1 and what you just printed for Q2, please?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [28]

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Flora, I will turn to Philippe Aymerich for the French Retail. And Jean-François Gregoire, Head of Capital Market to your question on the FICC side. Philippe.

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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [29]

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Yes. So yes, right now, banks components regarding the decrease on service fees. So the first one, of course, compared to last year is the impact of yellow jackets. I know that this measure is getting some fees, so it has a significant impact on this each quarter of this year compared to last year of minus EUR 21 million, so that's more or less 50% of the decrease. Second component, we have also a decrease on some fees, that were seen on mass market clients. People are now using, all the tech savvies, the digital things. They are more careful on the use of the other (inaudible), so we have also a decrease on this field. And the third component compared to last year, on this line, we have also impact of the premium to the new clients of Boursorama. And as you know, the quarter has been quite strong, so we have also an impact compared to last year. I would like to insist that, on the contrary, there is still a good momentum on fee related to corporates, the insurance and private banking.

And finally, and I think that you have also to take into account the trend on the line over income because on this item, we have seen whether this fee is related to subsidiaries on consumer finance and also on insurance, which are close to commissions, maybe in other banks, they are classified as commissions. So that's the explanation of this plan.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [30]

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Thank you, Philippe, and then maybe just for the sake of clarity, let me just highlight a little bit and explain the EUR 61 million because it's not specific to such additional highlights. It's something common to all the French banking industry. You have strategic instruments when the government wants to collect taxes on a compulsory way. (foreign language) in French. There has been in the last few years a debate and the government said that it should be actually tax with the VAT. We challenge that as a profession with legal action on our side. So we provision on the VAT without charging the clients, and it happens that effectively. We won this legal action. So I guess that most banks will effectively recognize our revenue. Of course, it will mean less money in the last few years of motors on that front because of the provision. Now Jean-Luc on the FICC side, the evolution of activity between the first quarter and second quarter.

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Jean-François Grégoire, Société Générale Société anonyme - Head of Global Market Activities [31]

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So it's true that there is a rebound compared to Q1. Actually, it's even -- our quarter is even better than the last 3 quarters. So we are not satisfied that with Q4 and the Q1 results, obviously. And we are pleased to see that even with the lower revenues that we have on the commodity principal part, where there is obviously deleveraging, we are going back to a more normal productivity. So to name a few on the flow business, we like to, as you know, to distinguish the June flow financing and investment solution. It's a great business that is stronger, much stronger than, if you will, and actually more in line to our normal business. In investment solutions, there was poor demand from investors in Q1. So here as well, the important significant, it's above on the rate investment products and credit investment products.

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Operator [32]

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Our next question comes from the line of Tarik EI Mejjad with BofA Merrill Lynch.

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Tarik EI Mejjad, BofA Merrill Lynch, Research Division - Equity Analyst [33]

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Can I just come back, please, on the global markets. And so you've described what happens in Q1. So I think previously, you said that the leverage would drive around EUR 200 million revenues drop. So should we expect like -- if you had a few tens of millions gone because of the deleveraging so far, so for the remaining EUR 3 billion, should we expect around EUR 150 million of revenues coming off from that, and that will be in this year or next? Because so far, we have the costs well modeled, but for the revenues we faced a bit not clear. And then a second question on capital. I mean, clearly, you've done a very good progress, but your aim is towards a Basel III targets. And you've seen all your peers, clearly, have run this strategy on a Basel IV even they compromise some short-term growth to build capital faster towards Basel IV. So how do you think about, like, internally, your budgeting and how you deal with growth and so on? And how do you think about the Basel IV? And still on capital, just can you reconfirm, you still have the EUR 2.2 floor in the dividend, I didn't see it in the slides?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [34]

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Yes, Tarik, I will let Séverin Cabannes answer your first question. Let me just highlight on your second one, yes, we are [lagging] in the calculation in 2019, 2020 that you saw, Page 12, with a 50% dividend and the floor of EUR 2.20. And I just say on Basel, we can confirm our previous estimate on the operational risk and credit, and we have dated the calculation, and it's actually slightly lower than the EUR 38 billion, with, I think it's around 36 billion. So it's roughly 110 basis points. But as you know, as you see, with the kind of projection that we have for end of 2020 and plus the extra capital generation in 2021, 2020, we feel comfortable to absorb the Basel IV impact. And I think the issue is more, of course, to adopt the business model to have a good profitability, but Séverin on the estimate of revenues.

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [35]

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Yes. We don't change up to now, the guidance we gave you at the end of the first quarter. So I answered what we are [moving], but it is a big part of the revenue impact will be seen -- and the full impact will be seen next year, right, because it's progressed. So we don't change assumption we made and the disclosure we made to you in the first quarter for the 2020 impact. It's more difficult to see how fast you will have this in the quarter 3 or quarter 4. But I think (inaudible) and mind say that you especially impact for EUR 2.20, which we already disclosed.

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Tarik EI Mejjad, BofA Merrill Lynch, Research Division - Equity Analyst [36]

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Okay, Frédéric you can just follow-up on your answer. I mean, so your base case now is we'll get to somewhere around 12.4% next year, and then it will offset the Basel IV phases -- as it phases, basically. There is no intention to come with some additional management actions to offset earlier than first implementation date on Basel IV.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [37]

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Listen, Tarik, We have done -- and I think, as everybody will acknowledge much better than everybody, anybody could have anticipated on the capital. We remain very positive on the 12.4% to 12.8%, so it's not just 12.4%. And can I just say that if I just look at the capital generation for the next 8 months, the plus 22 basis points, may I think relatively, probably, conservative. When you see that in 6 months, we did 28, so we monitor that. We know how important capital is, and I think it was reflected in the last 6 months. We remain very confident with our target. We are above the 200 bps margin over the MDA. I think things are really developing in the right way, if I may, when you look at this capital trajectory. And I think we have provided, hopefully, a lot of contracts in just 6 months towards that level.

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Operator [38]

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Next question comes from the line of Jacques-Henri Gaulard at Kepler Cheuvreux

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Jacques-Henri Michel Gaulard, Kepler Cheuvreux, Research Division - Head of Banks Sector Research [39]

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Two questions. The first one on the capital. Congratulations for getting where you are. I guess, the one thing that really showered a little bit the enthusiasm last quarter was the fact that a couple of days after your 11.7% and your 50 basis point accretion, was the fact that you had hired [McKinsey] as consultant to help you "Solve your capital problem," that's the way it was put on tape. And basically, it doesn't look that you need any sort of consultancy to get where you are. And after that, you had also a report on the tape, according to which you were on the verge of selling your U.K. private banking business. So could you clarify what happened on the consulting side, please, because that was a bit disturbing? It's question number one.

Question number two, the cost of risk in Africa ended up with a significant bounce in the second quarter. And it would be helpful to have a little bit of a guidance for the end of the year or for the next year about where we should have the trend on the cost of risk there?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [40]

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Jacques-Henri, I will let Philippe comment on the second part. On the first one, of course, that's absolutely ridiculous element. We don't need, exactly as you said, any consultants to our capital. We know our business. We are deploying. And I think all this is just noise, which with absolutely no sense. We are acting. We are acting on different front, as we have said, the net profit, which is a good -- a strong discipline on risk-weighted assets across the board. We have said that we have been going through all our activities to do that. The refocusing of CIB, which is going well. The disposal which follow strictly the guideline, which was decided when we commented on the adjustment of our plan beginning of this year, which is to sell. And we have started before, which is to sell assets, which have been denied to have. But at the end of the day, in terms of synergies, we are -- not necessary that core and to optimize the allocation of capital to our main franchise. We know how to do that. And I think it was demonstrated in the last 6 months. And can I just say my confidence to pursue that trajectory. Perhaps, Phillipe...

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Philippe Heim, Société Générale Société anonyme - Deputy CEO [41]

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Jacques-Henri, thank you very much. You give me the opportunity to highlight that the outlook in Africa is still a very bright, just a few figures, you can see that the top line growth stands roughly around 5%. And the -- we focus a little bit more on,, first time, in Africa, we are on a growth of 10%. Regarding, specifically, on the cost of risk. On IBFS, you see that we are currently at 38 basis points in terms of cost of risk, so we are well below. Our guidance we give during our Investor Day, that the cost of risk should go within 70 basis points. My point is that in Africa, clearly, the outlook is very [calm] in the subcontinent in Western Africa and Southern Africa, where the GDP growth is still around 5% to 7%. Many -- more contrasting in Northern Africa, and the cost of risk maybe has effects as the (inaudible) of the situation on there, but down the road, the cost of risk is very low. And we are comfortable with the guidance we gave 2 years ago that we should be well within in the 70 basis points for 2020.

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Operator [42]

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Your next question comes from the line of Azzurra Guelfi at Citigroup.

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Azzurra Guelfi, Citigroup Inc, Research Division - VP [43]

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One question is on capital. On the regulatory impact of the Tax Act. Can you give us some split between 2019 and 2020? And also coming back to the point on TRIM. Last time, I think you had around EUR 80 billion of excess deposit at the ECB. Is it still the case? Just to -- I'm trying to understand what could be the benefit of...

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [44]

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Yes, Azurra, William, he has the the figure, he'll answered your second question. Again, on the TRIM, if you referred to that, as we've said, we expect the work to be in the second half. But of course, it can be also postponed. So it's still a little bit uncertain, but a significant portion of the 26 to 46 estimate range should be in the second half. On the deposits.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [45]

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To be clear, you can see to it from 1 quarter to another, you see that our liquidity buffer increased EUR 11 billion this quarter. So it's -- in average at ECB, we have between EUR 30 billion and EUR 40 billion on the current account.

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Operator [46]

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Your next question comes from the line of Matthew Clark at Mediobanca.

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Jonathan Matthew Balfour Clark, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [47]

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So just a question on the EMC contribution this quarter, could you break out what came from revenues and costs, and is it the EUR 21 million restructuring or integration charges? In terms of the contribution to ongoing earnings, how much is already in there?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [48]

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Matthew, I will gues, very limited because it was just the process of integration. Severin, can you confirm?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [49]

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Yes, it's a significant this quarter in terms of contribution.

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Jonathan Matthew Balfour Clark, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [50]

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And when should that start to be noticeable?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [51]

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We don't change -- we say that late next year. We will have the -- not the full impact next year because the transfer of the businesses will be over the next 18 months, starting in the second quarter. So you will have the full impact in terms of P&L, and we mentioned that it will be EUR 150 million GOI impact in 2021 to be clear, so you have progressing from nearly 0 this quarter to this full impact in 2021.

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Operator [52]

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Your next question comes from the line of Guillaume Tiberghien at Exane.

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Guillaume Tiberghien, Exane BNP Paribas, Research Division - Head of the European Banks Team & Analyst of Banks [53]

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The first question relates to Basel IV, would you care to give us, first, assessment of what you think the FRTB impact could be? The second question relates to your TLAC. Obviously, you seem to have a very comfortable level. And I'm wondering whether your stock of AT1 at EUR 9 billion when presumably you only need EUR 6 billion is not a little bit too high and can you not optimize that? And the third, it's not a question, it's just a clarification. I don't think you answered the question on whether the dividend is still floored at EUR 2.20?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [54]

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Guillaume, I will leave William answering your 2 questions. I said -- sorry, if I was not clear. Yes, all the calculation that we made in the capital trajectory throughout 2020, taking off [indiscernible] 2020 encompasses in the calculation, both the 50% and the potential application of the floor, so the 2 are integrated. William?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [55]

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Guillaume, so it is true that we have amongst the very strongest ratio with, effectively, TLAC being one of the first banks and well-compliant. And also with a Tier 1 ratio of nearly 15% in a total cap of 18%, that benefit from strengthening of the core Tier 1 ratio. It is also true that we have always had the policy to upfront the necessity to tap into the [SMP] market. We may do some marginal adjustments, because we also very mindful of the economic sense of all of it, but so far, we are happy to show that we have a balance sheet that is strong across the board. And that leads me to pointing everyone to the fact that core Tier 1 is really one of the key ratios, and the way we feel the balance sheet overall is a little more comprehensive. But you're correct, on the margin, we could do some economic adjustments and replace, for example, some (inaudible) instruments, with more incentive, which is more economical on the margin.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [56]

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And on the FRTB, let me just say, we are still refining the interpretation of the text. Let me just remind you, we have a capital market risk at EUR 17 billion. So our first assessment (inaudible) is very manageable. Let me just also remind you, it's likely to be implemented between 2024, 2025, at least not earlier than 2023, but more likely in 2024, 2025, so no figure at this stage. But as I said, a very manageable impact at the group level.

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Operator [57]

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Your next question comes from the line of Maxence Le Gouvello at Jefferries.

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Maxence Patrick Patrick Laurent Le Gouvello du Timat, Jefferies LLC, Research Division - Equity Analyst [58]

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My question would be on corporate finance. You have already achieved your really securitization, what kind of role can we expect on 2019, please?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [59]

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Maxence, can you just clarify when you say corporate finance because you mention securitization at the same time, do you mean -- Can you be a little bit more clear on your question?

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Maxence Patrick Patrick Laurent Le Gouvello du Timat, Jefferies LLC, Research Division - Equity Analyst [60]

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You mentioned on your Slide 20, that you have an active management of your portfolios, and you have apparently transferred some risk and assets for EUR 10 billion in the first half of '19 when you already achieve EUR 11 billion on 2018. So my question is, which kind of range can we expect? And what's kind of RWA can we expect in terms of free-up.

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [61]

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Okay. Thank you for clarifying all that. It makes sense. Sorry, I think, we are managing our risk-weighted asset consumption in our global banking and there are new limits with fixed and that we play out earning program we have. And we are managing -- so we don't change the total target we had to reduce by EUR 2 billion of RWA consumption in [GLBR]. But we are using -- to address the origination we have, we are using all the tools to always transfer securitization or recapitalization. So the real point in terms of risk-weighted assets is we will be at the target. We are committed to using all the instruments we have, so we have an active capital management. So I don't think it's fairly useful to have the part of the distribution part. But because we are managing the -- with our OTD processes, we're [above] risk-weighted asset consumption.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [62]

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And if I may, just additional operations to come through, which gives us a lot of comforts in the management of the risk-weighted asset in the coming quarters in terms of capital trajectory, so we think that things are really under control.

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Operator [63]

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Next question comes from the line of Omar Fall at Barclays.

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Omar Fall, Barclays Bank PLC, Research Division - Analyst [64]

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Two questions, so just thinking your comments around the impact of lower rates in Western Europe, making your remaining international retail franchises more valuable. Is the implication, therefore, that when we think of the remaining disposals in the program, the 33 bps to 43 bps, we should think of assets outside of that? And in that vein, could you help us understand the synergies with the rest of the group as the custody business. When you stop disclosing it separately a few years back, it wasn't making much money, so are you the right owner of that asset?

And then the second question is just on the 26 bps to 46 bps of further regulatory headwinds. Is NPE calendar provisioning included within that. Sorry, if I missed it. I know you don't have many NPEs, but there are some pretty surprising outcomes for that in the sector. So I was just checking.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [65]

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Omar, the first question, I will leave the floor to Séverin to comment on custody. As we said, regarding international retail, the disposals are done. So we will keep our current operations in Central Eastern Europe, Russia, Africa, and as you've said, I see that as a real and clear asset as effectively. In the Eurozone, retail activities might further suffer from a longer low rate environment than expected, so that's done. So we will not do more. I'm not sure to have understood exactly your question on capital. Can I just say, I think that we've given a range between 30 and 50 basis points, which precise is here. And take into account some uncertainty, and we are also then making the calculation. That's why we have a range basically (inaudible) 12.8. On one hand, it's all the worst assumption and then the best assumptions. It's probably right to say that at the end of the day, we might end up in the middle at this stage, I think. So I think that we give as much information as we can on that front, and we think it's still a reasonable range for those stream exercise for 2019, 2020.

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Omar Fall, Barclays Bank PLC, Research Division - Analyst [66]

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Sorry. Sorry, it was actually just on NPE calendar provisioning, and the impact that might have and whether that's in your guidance of regulatory headwinds?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [67]

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Okay. So I will (inaudible) do that. And then Séverin will answer the NPE.

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Diony Lebot, Société Générale Société anonyme - Deputy CEO [68]

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So I assume you are referring to me. But to expected -- on the new NPLs, starting ['18], which would have an impact for 2020. So as you already said, we have already quite a high coverage ratio, so we expect this to have a relative impact.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [69]

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Severin, the custody.

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [70]

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Yes, regarding your question, Omar. It's a fair question. If you look at the synergies, what we have with this business with other activities with the group, we have real synergies. We have resynergies with global market activities, of course, but there's also synergies on Financing and Advisory, plus corporate clients are also clients of our resilient business. And we have synergies as a return because, as you know, our [customer] activity is mainly institutional, but also retail. So there is real [synergies] with other clients with other activity. So second part of our thinking is the capital intensity of this activity is limited. Today, in the global capital allocated to GBIS businesses, SGSS our custom business represents 2.5%. So a real point, I have today in my plan is really to restore the profitability. But even if the capital consumption is low. We have this issue in terms of return within our custodian business. And the plan we have launched is also covering our custodian activity, and we have clearly an efficient and productivity plan -- in the plan to restore profitability. So for me, at that time, there is still a value to create in-store structuring our custodian activity. And there is also a consolidation in the European market, and you can, through our -- increase your side, not necessarily through acquisition, which is not our strategy, but just the normal cash commercial activity to grow, so it services business. First, I believe that we can deliver more value within ociété Générale's activity.

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Omar Fall, Barclays Bank PLC, Research Division - Analyst [71]

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And when we -- sorry, just to follow-up on that. So given that you're slightly ahead of the 12%, you're clearly very confident of your ability to generate and generate more capital. If one of the levers had to be reduced, would it be the potential for maybe not selling the [4 33]to 43 basis points worth of additional refocusing programs, i.e., to try to not value the earnings by selling some further assets? Could that be a possibility if the capital generation maintains its current track.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [72]

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No, I mean, listen, we have definitely a list of assets, which makes sense in order to sell, in particular, again, to allow the core businesses to have growth and further develop, while, of course, having top priority in terms of building our core Tier 1. So I don't see a reason to change that assumption. I mean, we stick to our plan. And as I said, further processes have been launched to meet the target. And I don't see a reason to change that plan.

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Operator [73]

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Your next question comes from the line of Lorraine Quoirez of UBS.

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Lorraine Quoirez, UBS Investment Bank, Research Division - Director and Equity Analyst [74]

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Well, congratulations on achieving so much of the capital from such a short period of time. And I think progress are very important for the investment case, obviously. Now I'd like to move on to the underlying profitability. I can't read you put a 9.7% ROTE. But I think if you adjust for some numbers in the Corporate Center, the underlying profitability is actually a lot lower. And even if you have progress on the Capital, I was wondering whether it's a structural low profitability is not something that could come and hunt you again in the future. Now my question would be, how can you accelerate the cost cutting, particularly if interest rate environment is trending lower?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [75]

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Lorraine, thanks, again, for your kind words on the capital. Can I say that this show profitability is probably common to many banks in Europe. We are -- we are engaging in cost cut, we are following our program. As you know, we don't have yet all the benefits of things, which has been launched, as we just mentioned, for example, on the CIB (inaudible) modest part of the cost savings that we have in mind. We will further improve profitability with the contribution of international retail and financial services. And of course, we are monitoring strongly the cost on the French retail, and I see that we are ahead of also our target that we give for this year. As you can see, a lot of effort has made are made on cost, and we know it's also a key lever going forward in terms of profitability and an area of focus for all the teams in the group. And so we are working on that significantly and we stick to that discipline on the cost side. Can I just highlight the decrease of cost in the French retail this quarter, decrease of cost in CIB this quarter also, we don't get the benefit fundamentally of the full restructuring. I think we are moving in the right direction.

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Lorraine Quoirez, UBS Investment Bank, Research Division - Director and Equity Analyst [76]

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Maybe just to follow-up on the French Retail. So the first one on [17] on cost was up [1% to 2%] versus the previous year. I just, so is that -- what's happening in the second half, i.e. to be a restructuring cost or can you explain.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [77]

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Lorraine, it's fair. We don't want to change our yearly guidance every quarter, it is likely that our initial guidance was a little bit (inaudible) conservative.

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Operator [78]

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Your next question comes from the line of Kirishanthan Vijayarajah at HSBC.

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Kirishanthan Vijayarajah, HSBC, Research Division - Analyst [79]

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So first question on French Retail. So given the moving rate expectations in June. I'm just wondering if there's been any sort of flow through in terms of mortgage pricing, and in particular, actually, is the sort of early indications of refi activity picking up in French mortgages? I know it's kind of early days, but just in terms of -- if you've had incoming inquiries from your mortgage customers? Second question is for the other Philippe. So our loan growth in the Czech Republic, that seems to have slowed quite dramatically, just 0.7% you show on Slide 57, is that the rate rises in the public starting to bite into kind of loan demand? Or are you turning a bit more cautious on the Czech Republic. So just some color on what's going on there, please?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [80]

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Yes. Philippe, the first is on the refinancing of mortgage? And then the second one on Czech Republic. Philippe.

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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [81]

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Yes, at this stage, regarding renegotiations of volumes very low, We are at 3% and we remind you that first quarter of 2017, we were at 25% at Utica. So at this time, we do not see a tightness, and the repurchase and anticipated repayments and also quite low at 4.9%, which is what we call the normal level.

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Philippe Heim, Société Générale Société anonyme - Deputy CEO [82]

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The second ship on the Czech rate loans. Yes, thank you very much for your question. Just the point of clarification. If you want to measure the (inaudible), the evolution of the new loans in Czech Republic, you have to strip out a technical effect on the repo book. So if we exclude this effect, in fact, the loan growth, then at 40 -- between 3.5% and 4% of my mind. So more in labels market, but more in line with strategy on the market. So we have to neutralize this effect.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [83]

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And more questions.

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Operator [84]

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There are currently no further questions. Please continue.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [85]

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Okay. Well, I think as there is no more question, we will -- there's another question, sorry.

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Operator [86]

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Yes. David, we are the questions just come through is from the line of Pierre Chedeville at CM-CIC.

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Pierre Chedeville, CM-CIC Market Solutions, Research Division - Analyst [87]

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2 quick questions. First question regarding the cost of risk and particularly in the CIB. Wanted to do is there any write-backs this quarter regarding the cost of risk, because I'm a little bit surprised to see it so low. Regarding the fact that we all know that some situations are quite quickly in France and the (inaudible), I would say? And my second question is regarding Romania, we can see here again that the cost of risk and also in Czech Republic, the cost of risk is either net write-backs. And here, we are not in an environment linked to, I would say, low interest rates, the correlation quite low-cost of risk and low interest rate is evident, I would say, how do you explain that quarter after quarter, we have this write-back, shouldn't you definitive write-backs, what more, that we could see, I would say, the profitability on these two subsidiaries. And one suggestion, if I may, you have talked about a deep dive on international banking, which is a very interesting perspective. I think it would do so interesting to see what is your strategy and your position regarding the payment side because we see that a lot of big, some new companies are very eager on this subject, and we don't know a lot regarding such as strategy and sales.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [88]

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I think your point on payments. We might not be able to do it on the 10th of November, as we have already many items. And I think, very interesting one, actually, in terms of further development and profitability going forward that I picture point. Within the (inaudible) can I just say, on the overall cost of risk, in particular, returning to what you said, the ship. We are a definition of provisioning, when there is a potential issue, we don't comment on any specific fire. This good level of cost of risk includes the adequate provisioning, you might know, we might some business, certainly, the most exposed on supplies and adjust it to (inaudible) our contact regarding our guidance, we said that [25 to 30,] we stand at 23 basis points. I'm very confident on the capacity to maintain this guidance and to level of cost of risk in the year 2019 for the second half. That's (inaudible), on Romania more specifically.

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Unidentified Company Representative [89]

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Yes. Pierre, thank you very much. So it's true that we have a write-back this quarter, the gain in Czech Republic and Romania, as for EUR 7 million in Czech were roughly EUR 25 million in Romania. Here, just -- I remind you that two things. We don't have this quarter of insurance. We have this benefit last year. Now I think this is more or less the effect of IFRS 9, where you have to capture. Let's say, It has been a forward looking view, all the adjustment on your (inaudible). And currently, the outlook is positive, and we have been at that. This is a very technical. Hence, we have an expressed of our exposures, cost of list on the euro business units stand at 4 basis points, so it switchable valuable. But then, you all know the business is because of IFRS 9. So clearly, as we speak, the outlook is positive. And once again, I confirm that we are comfortable with our guidance for the (inaudible) and IBFS for the (inaudible)

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [90]

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Apparently, as apparently there is no more questions.

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Operator [91]

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There are no further questions.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [92]

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Okay. Well, thank you very much for your participation. Have a nice break, if you can take some holidays in August, and as you thank you very much. Bye-bye.

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Operator [93]

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That does conclude the conference for today. Thank you for participating. You may all disconnect.