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Edited Transcript of GLE.PA earnings conference call or presentation 6-Feb-20 2:30pm GMT

Full Year 2019 Societe Generale SA Earnings Call

Paris Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Societe Generale SA earnings conference call or presentation Thursday, February 6, 2020 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Diony Lebot

SG Corporate & Investment Banking - Deputy Head of The Coverage & Investment Banking Division and CEO for Western Europe

* Frédéric Oudéa

Société Générale Société anonyme - CEO & Director

* Jean-François Grégoire

Société Générale Société anonyme - Head of Global Markets Business Unit

* Philippe Aymerich

Société Générale Société anonyme - Deputy CEO

* Philippe Heim

Société Générale Société anonyme - Deputy CEO

* Séverin Cabannes

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

* Delphine Lee

JP Morgan Chase & Co, Research Division - Analyst

* Flora A. Benhakoun

Deutsche Bank AG, Research Division - Research Analyst

* Gregoire De Salins

Morgan Stanley, Research Division - Research Associate

* 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

* Kirishanthan Vijayarajah

HSBC, Research Division - Analyst

* Lorraine Quoirez

UBS Investment Bank, Research Division - Director and Equity Analyst

* Omar Fall

Barclays Bank PLC, Research Division - Analyst

* Pierre Chedeville

CIC Market Solutions, Research Division - Analyst

* Stefan-Michael Stalmann

Autonomous Research LLP - Partner, Swiss and French Banks

* Tarik El Mejjad

BofA Merrill Lynch, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen welcome to the Société Générale Fourth Quarter and Full Year 2019 Presentation. Frédéric Oudéa, Chief Executive Officer; and William Kadouch-Chassaing, Chief Financial Officer, will present the group results. Gentlemen, please go ahead.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [2]

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Okay. Thank you. Good afternoon to all. Thanks for attending this presentation of our fourth quarter and full year result for 2019. Let me just mention that we have our colleagues in Paris connected, and you will be able to interact with them, and with also some colleagues in Paris, who will be able to ask some questions. We'll go through the presentation as quickly as possible with William and, again, then enter into the Q&A.

So please, let's go immediately to the slides and Slide 4. First of all, we've tried to recap the achievements of 2019. Can I say that we have met all our objectives, commercial, operational and financial? And in particular, if I refer to the financial objective in this slide, first of all, obviously, on the capital, which was the core priority, the -- let's remember the beginning of the year, the question marks, I think, we have answered. We ended the year with a 12.7% core Tier 1 ratio. You will see the details, even 12.8% pro forma, the disposal of our Norwegian leasing business, which is not yet closed, and it's, again, a strong increase in the fourth quarter. Knowing that, of course, it takes into account the benefits a EUR 2.2 per share dividend, cash dividend, as committed. I don't enter into the detail, but it's the result of strong organic capital generation; a very successful disposal program, which is -- has been achieved for 70% of it; and of course, the successful also restructuring of the GBIS with a strong decrease of risk-weighted assets.

Beyond this, we have, I think, worked very much on the profitability. And when I say that, first of all, it's on the costs. The costs are decreasing by 1% versus 2018, despite the fact that we carried on investing and investing in IT, investing in compliance and remediation program. But I think that showed the discipline we've had. And when you look at each business in terms of profitability, the French retail did pretty well with a return on normative equity which is basically flat, which is quite an achievement, with the IBFS, international retail financial services, which delivered exactly in line in the higher range of the profitability target between 17% and 18%. And with the GBIS, which is working on its profitability, but as I said, we have already the -- some benefits of the savings, but everything is now secured. 24% was accounted this year in 2019, and I will get the full benefit of our savings next year.

Last thing that we would like to mention, the cost of risk, 25 basis points for the full year. The lower level of the range, 25 to 30 basis point, and they are going down. We are providing the comparison according to the EBA in the appendix. And you can see that with the standard calculation, we have lower than average NPL ratio and with also very good coverage ratio. So that means we enter into 2020 with a pretty robust balance sheet and credit portfolio.

Next slide, just to mention that, of course, we are probably just at the beginning of a big transition in terms of energy and climate change issues. There's still a lot to be done, but Société Générale is at the forefront of that. And you have on this slide a few rankings, a few acknowledgment of where we stand, and I think it's something which is also and would be more and more important for our clients, for our investors and for all our stakeholders. And you will see, we will propose to discuss that during the year with a specific session.

In the order -- in the sake of trying to save time, let me just go through the next slide quickly. I'd like to highlight that beyond what I already had mentioned, to strengthen the business model in terms of refocusing, working on profitability, allocating as precisely as possible the capital, I'd like -- just would like to highlight the digitalization, which is absolutely crucial. I insist it is the #1 operational transformation in all the businesses, whether they are retail or on the corporate side. Same thing, it's a journey, but I think we've made further progress. I'm very happy to see what -- how we are implementing digital technologies and the change in the IT architecture in French retail. And we are making a bit also further progress in the development of new business model, Boursorama, obviously. But recently, we launched a new start-up for the kind of Boursorama for the small -- very small and mid-sized corporates. I think being entrepreneurial in this domain is also important and part of the right culture going forward.

The next slide -- and I will finish that and turn to William to enter into much more in the details, 2020 outlook. In terms of capital, we will maintain the same discipline. We have the same target, 12% core Tier 1 target. Happy to talk about 2020 because I think it might be the turning point for the European banking system. And I must say, I'm more positive now than I was 6 months ago. And I think there are pieces of the jigsaw which are being put, and I think we'll have clarity at our year-end, happy to discuss about this. We will, for the time being, maintain, of course, the same policy and with a buffer above this target, which is probably now a conservative one. But let's wait, and we will monitor the group at a high level.

Regarding profitability, what we can say is that the commitment to, first of all, deliver growth of revenues. Fourth quarter is obviously very promising from that perspective. But beyond -- for the full 2020 year, it's important to show that. Second, positive jaws across all the businesses, and in particular in the French retail, we confirm, but also, of course, in GBIS. And then we are just lowering our range of cost of risk. We had the range from 35 to 40 basis points. And actually, looking at the full year of 2019 with the perspective of the portfolio, we are lowering the range between 30 and 35 basis points, so a slight increase versus this 2019 year. And it means effectively an improvement of the profitability, the return on tangible equity.

Regarding our shareholder return beyond, of course, the objective to increase the EPS and the net asset per share, let me mention we are adjusting our dividend policy. We are -- base our policy on a payout ratio, 50% payout ratio. I think it's more or less the standard, the norm for European banks. On the underlying results and after the AT1 component, let's be very clear and specific on this, that's something which, again, is also, I would say, a nice way of looking at it, the normal way of looking at it. And knowing that within this 50%, we are going to include up to 1/5, so 10%, of the net profit of share buybacks. We had a lot of discussions with the market, our shareholders. And we think that at least with this current valuation, it makes sense to do that. And the idea, of course, will be to start as quickly as possible on that program.

That's what I wanted to say as an introduction. Now I leave the floor immediately to William to enter more in the -- and to discuss.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [3]

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Thank you, Frédéric. Good afternoon, everyone.

So I'll start as usual, commenting the highlights for the fourth quarter of 2019 as well as the full year results as it relates to the key pillars of the group's 4 business pillars and the Corporate Centre. The one thing I would like to stress, particularly as Frédéric hinted already for this quarter, is that we are back to growing revenues. Underlying revenues have been growing at a pace of 4.8%, close to 5%, in current terms this quarter over the same quarter of last year. It's about 7%, 6.8% adjusted for scope and foreign exchange. This is combined with a decrease in underlying cost of 0.7%, so minus 0.7%. It means positive jaws, a decrease in cost-to-income by 4 points, adjusted for scope and foreign exchange and an operating income that increases by 33% over -- year-on-year. The group net income stands at EUR 875 million in underlying terms, which is 8.7% up relative to the same period of last year. And ROTE is at 6.2% for the quarter. For the year, the group net income stands at nearly EUR 4.1 billion and ROTE ends at 7.6%. I would like also to stress the fact that the net tangible value -- book value is up 5.6% year-on-year.

Now turning to the key element on the businesses and more looking at an annual performance. French retail banking end the year with the resilient profitability we've been talking for about a few quarters at 11.1% return, with business performance which is very much in line, actually better than what we guided. Revenues are -- for the year are up 0.3% excluding PEL/CEL effect, as it is usual for French banks to report. It's ahead of what we've guided you to. We had said revenues may be in the red 0 zone, i.e. between 0% and minus 1%, which actually plus 0.3%. We had said costs would go up between 1% and 2%. Costs are actually up 1.3%. Adjusted for EUR 55 million of restructuring costs which we have in this quarter, costs are only up 0.3% year-on-year.

On International Retail Banking, strong growth again this quarter, 5.6% for the year, adjusted for foreign exchange and scope, and it's combined with strong profitability at 16%, same for insurance and financial services. Their growth is nearly 3%, combined with an increase in the profitability to nearly 21%, 20.8% more exactly. Where we have obviously very positive development this quarter and ending much better the year than we had started is in global banking and investor solution. I'll come back to it. Profitability is still at the unsatisfactory level of 7.4%. There's still more work to be done. Yet revenues for the year, adjusted for the runoff of activities and deleveraging impact, are up 1% year-on-year, which costs have decreased adjusted for restructuring costs by 2.5%. So this is positive jaws. And as for the quarter -- as far as the quarter is concerned, adjusted for the one-offs, revenues are up 11% in CIB and costs are down 2%.

Finally, Corporate Centre, I guess on the gross operating income can be considered as better than guidance at EUR 246 million. What I would like to point you to is that these -- there are 2 elements of one-offs here. One is -- was known by you largely, which is the impact of IFRS 5 related to our disposals, EUR 137 million. We had talked about the impact of signing of Norwegian equipment finance business, plus we incur in this quarter the impact of the write-off of the group minority stake in Lebanon. We have 16.8% stake in Société Générale Liban, which we wrote off completely this quarter.

I'd like to turn to the next page and just to summarize with a few numbers, the efforts we have made and we continue to make on costs. We delivered a decrease in absolute term of the cost base of the group here, minus 1% for the year. I already said minus 0.7% Q4-on-Q4. For the quarter, positive jaws, quite significantly, plus 4.8% revenues, minus 0.7% on costs, and this is largely due to strict cost discipline across the board but also the implementation of the cost plans we had announced. You remember the cost cut of EUR 1.1 billion we had announced back here in November 2017. We have executed 70% of it. We also had announced earlier this year the implementation of a new cost plan for an equivalent of net cost reduction of EUR 500 million in CIB. We had said at the time we expected that we would be able to implement between 20% and 30% of that ambition. We actually managed to deliver 44%, so that's 60% of the total cost plan.

Cost of risk, which is the next page, Frédéric already largely commented. Cost of risk, we ended the year at 25 basis point, which is at the very low end of the range. We had announced 25 to 30. And as Frédéric said, we see an increase next year to 30 to 35. This is very gradual. It is really based on the fact that we have very strong volumes across the board in France, in CIB, restructured finance, in international retail and financial services. And it is logic that we have some gradual increase in the cost of risk. Very importantly, we continue to work on decreasing the NPL ratio, which stands at 3.2%. So Frédéric alluded to the transparency report by EBA, which you have in the appendix. The equivalent ratio is 2.6% as far NPL is concerned, which is one of the very best ratio in Europe. The average for European banks in the sample is 3%, and we also fared very well in terms of gross coverage ratio.

Capital. I guess you're starting to get -- getting used to the fact that we produce capital every quarter, so we produced 24 basis point capital this quarter over the Q3. It stands at 12.71%, plus the additional benefit from the signed disposal less the cost of the acquisitions. It is a pro forma of 12.8%. This is 270 basis point above MDA to be compared with our target of 200 basis point. That includes EUR 2.2 per share, fully provisioned as per the dividend. And also, as you may have seen, this also includes a little capital increase we have done for our insurance activities. This is already in the ratio, nothing to be expected in the future. So this is a very strong, I consider, 12.8%.

As some of you I know are a bit nostalgic of -- because we had that comment of the capital walk page. So referring to it, I'd like to stress that on organic capital, we had announced for the period of '19 to '20 50 basis point. We've completed 41 basis points organically, up 30 basis point in the -- solidly in the fourth quarter. For -- year-to-date, it's 41. On global market RWA reduction, we had said 25 basis point. We've done the 25 basis point. We had said other RWA reduction between 10 and 20, mainly in the form of risk transfer. We've done 17. We had said refocusing program, 80 to 90 through the end of 2020. We have done 57, which is 70% of the program. And we had said, unfortunately, we will have some headwinds on the regulatory side, 30 to 50. We only had 2 basis point of it in the year.

I'd like to be a bit specific on that. We knew -- have a better visibility. We considered probably be rather the 50 than the 30 that you have to consider. But all in all, I think we can make your computation and put in perspective what Frédéric has said, which is we target 12%. We are comfortable that we should be above, everything else being equal. Leverage ratio stand at 4.3%. TLAC, MREL, we are compliant. We have increased our liquidity buffer in the year by EUR 18 billion and end up with EUR 190 billion.

I don't comment the next page usually, which is just a table. But just to stress again, one number particularly which is not in the detail, the revenues from businesses adjusted for scope and foreign exchange are flat year-on-year. So you have a base effect for the group because you may remember last year, we had the revaluation of the -- all shares in Euroclear, which creates a base effect.

French retail. There are again some elements on the commercial dynamics. Very simply, first, we continued to acquire clients, both for the traditional or so-called traditional networks on the target clients, which you know for us are corporates, professionals, wealthy and patrimonial clients. And as far as Boursorama is concerned, digital -- fully digital clients. In this sense, you have some numbers on corporate clients, on wealthy clients. We continue to grow also the target professional clients, and Boursorama is well ahead of its plan with an additional 540,000 clients acquired this year.

Production, number two, is -- continues to be very strong. And this year, we had medium-term corporate loans up around 7%. Same for individual client outstanding, up around 7% year-on-year. Bank insurance makes good progress. This is a key element of our growth, whether this is life insurance. And we had a better performance in the past months, especially on unit-linked. So outstanding are up and unit-linked are up as well. And personal protection is progressing towards a ratio close to 22% penetration. Private banking at record net inflows, at EUR 4.2 billion.

Third, we continue to adapt the network. We consider -- should you -- you have here a statistic on Société Générale Network. But should you add Société Générale and Crédit du Nord, we've completed nearly 85% of the program of branch closures we had set in 2015 for 2020. So we are very confident we're going to go there. And the consumption of products online with self-care of clients are increasingly buying product. The banking users online is increasing as planned.

As far as the results are concerned, which is the next page, I won't repeat the trend in revenues and costs. Just on the quarter, revenues are up strongly at 2.3%, and costs are also very well contained at 0.4%. The costs in the quarter includes EUR 55 million, so what I -- the 0.4% I mentioned is adjusted obviously for that provision.

I'd like to point out that for the next year, we don't change the guidance we have given to you a few months ago, which is that we see some pressure on revenues. So probably, we see again that it could end up in the red 0 zone, 0% to minus 1%, given what has happened particularly on the red side in the macro. But we strive for a decrease in the cost base and positive jaws in French retail in 2020.

And the last comment I would make on French retail. Increasingly, we will communicate to you differentiating the profitability of the various networks. The so-called traditional networks have a profitability of 12%. In Boursorama, adjusted for the cost of acquisition -- you may be used to it because we presented that in the detail, is very well in line with what had been presented to you in terms of profitability, which is above that 12%.

On the international retail, a story that is very consistent with what we have been discussing in the past quarters and what Philippe and his team mentioned to you in the recent deep-dive. Still strong production, both loan and deposits, in Europe, in Russia -- in Eastern Europe, in Russia and in Africa. Let me stress specifically that in consumer lending, which is mostly a Western European business for us, Germany, Italy, France, plus effectively Czech Republic and Russia, outstanding has been growing 8%, 10% this year. And as you know, the average profitability of that business is close to 17%, so very strong.

What we wanted to stress particularly is also the fact that we work on efficiency in these areas. So when you look at these numbers of branch closures, to pick at that -- some data on the page, this is quite significant because in fact, beyond the absolute terms, it is a reduction of 15% of the branches in Russia, 6% in the Czech Republic, 10% in Romania in one year. So we will continue in these countries where we see strong intake of mobile banking usage by clients to optimize the setup. Another data point I'd like to stress, but I think Philippe and his teams have already mentioned it, we have 21% of our sales made on digital channel in Russia, which is the best rate we have in the group. And obviously, we will strive to convert the group toward that level and increase it.

Next page is on insurance and financial services. Strong dynamic, combined with a high RONE of 20.8%, as I mentioned, so insurance, outstanding. Life insurance are up 8%. Protection premia are up 8%. P&C is up 9%, of which you have a growth in France of 5%. ALD, some of you may have followed the release of the results today, very much in line with what had been announced. Fleet, including some bolt-on acquisition, is up 6%, and now it's very close to the world leader at 1.8 million, very good profitability. As well, guidance achieved, and equipment finance outstanding, up 2.5%. Let me stress the fact that the net income of the SGEF, our equipment finance business, #2 in Europe, is up by 30%. So in a nutshell, a very good year for international retail and financial services, nearly EUR 2 billion net result contribution, close to 18% return on normative equity, which is very much in line with our guidance for 2020. That, combined with a revenue growth of about to 5% overall.

On CIB, that's obviously a very bright spot for us of -- in this quarter, not very, as Frédéric mentioned, reassuring for us because when you embark in a not so favorable economic and market context into a deep transformation, I remember you -- very wise questions as to whether we would destroy even more the franchise, which we had to do some cost savings. And what we can say is that, for us at least, the fourth quarter indicates that the franchises are in good health after this focusing exercise and this cost reduction.

Talking about -- starting with market activities. Global markets activities, revenues are up 13% and are up 18% excluding activities in run-off, that is mainly the citywide activities in the FIC. That means FIC revenues are up 41% year-on-year in Q4. Equities are up 9% year-on-year. I'd like to insist on that because this is clearly a core franchise for us. This 9% has to be put in context. You may remember that in Q4 '18, although we had bad numbers, there were, in average, better, specifically in equities and the rest of the sector. So we don't have the same base effect, at least not to the same order of magnitude. So again, this 9% compares quite very well to the pool numbers. And if you check the numbers, it's quite ahead.

Third, the performance is very much related to the equity derivative franchise. I'm sure you -- apart from a few exceptions, you have often heard in this fourth quarter that people were very happy with cash equities, much less so about equity derivatives. So we consider we gained share in the very core franchise. The financing and advisory for the year, revenues are up 3%. Actually, adjusted for the deleveraging, they are up 6% and they are slightly down in the fourth quarter. We had a very good fourth quarter 2018 in terms of production. But adjusted for deleveraging, they are up 1%.

A little comment on transaction banking. We had mentioned to you, we were investing heavily in reshaping that area 2 years ago. Revenues were up 9% year-on-year in that division, and the return is 15% for that division. Wealth and asset management is back on growth. Revenues were up 8% year-on-year in the fourth quarter.

So when you turn to what we have been trying to do, I maintain some dynamic in the franchise whilst doing a heavy lifting on the restructuring. What you have on this page is on the left-hand side, the targets we consider we have achieved. Number one, on the RWA reduction, done. Actually, we exceeded the tension of 2020 already in 2019. We had said we would do 20% to 30% of that EUR 500 million. I've already said we completed EUR 220 million, which is 44%. We had said we would incur EUR 250 million to EUR 300 million restructuring costs. The actual number is EUR 268 million, so we're very much in the ballpark of what we had said to you. And we had said, unfortunately, there will be some consequences on the revenues, minus EUR 300 million. What I can say is for 9 months, it's not a full year, it's about EUR 190 million. So we are quite confident we will exceed that number. So adjusted for a number of factors, you know revenues are up 1%, as I said, and costs are down 2.5% for the year in CIB. And obviously, we don't want it to be the first and only year where we decrease costs. As you know, we are embarked into that intention to decrease costs in absolute term, to rather EUR 6.8 billion cost base in CIB.

In a nutshell, which is what you have on the next page, revenues are up, as I said, 11% adjusted; in the fourth quarter, plus 1%. I don't comment more on the other numbers. We've already said net income is up 61% Q4-on-Q4. The RONE, again, is 7.4%. And as Frédéric stated, we are not happy with that. We're working to improve it. That's clearly a level for us in terms of improving the profitability, to quote Frédéric in his own words.

Corporate Centre, I don't suggest we spend too much time. I've already mentioned the key elements. So I leave it for questions. I mean, you have the 2 one-offs and despite the overperformance relative to guidance.

And I turn to Frédéric again for the conclusions.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [4]

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Yes. Thank you very much, William. Just a few words of conclusion. So after this successful 2019, we want to pursue, first of all in 2020, according to the same kind of directions, disciplines on costs, on capital and, again, with this benefit of probably being able to focus more attention on also the business opportunities, having done the restructuring, this heavy restructuring behind us. But we will also prepare for the next phase, 2021-2025. We will pursue the transformation, and this transformation will not stop in 2020. We have 3 main axes: Clearly, customer satisfaction, customer experience in this world of digital, this is going to make the difference in the long run.

Secondly, efficiency. When I talk about efficiency, it's, in particular, fully digest the benefit of the investment of core equity and also having the post-remediation phase. And in our costs, we are embarking still heavy cost of remediation. In the next 2, 3 years, it will go and beyond, as I've said, with the benefit of investment we are currently making in our newer systems. And third, sustainability, it's very important. Climate, as I said, I -- it's just a start. It's not just about financing renewable. It's rethinking the portfolios on credit, on investment, but it's also on the retail side. So we want really to think about what it can mean. And it's beyond client. It's around also social responsibility regarding the staff, the transformation and also Africa, as you know, which is specific to us but very important. So what we would like to propose to you is, in this year, perhaps the first session in the first half, around sustainability, just to show how we think about it. And it's, in second half, around efficiency and digital, how we combine the 2 to make our business in a more efficient way. And again, I will not repeat what we want to achieve in terms of shareholder value creation, but I think 2020 will be a successful year as 2019 has been.

So that's what we wanted to say, to present. Now I mean, again, we are ready for your questions. Normally, I think Paris is connected. We had them on the screen.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [5]

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On the screen. Can you hear us, Paris?

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Unidentified Company Representative, [6]

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Yes, definitely.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [7]

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Okay. Great. Well. So with -- yes. Okay. Here you are. Thank you very much. We'll start -- Tarik and then Jacques-Henri, okay, so we go this -- ladies first. Okay. Ladies first. Yes. Yes.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [8]

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We're still friends, right?

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

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Ladies first. Ladies first. Sorry, gentlemen. You will have your turn. Yes.

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Questions and Answers

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Azzurra Guelfi, Citigroup Inc, Research Division - VP [1]

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A question on the target. You haven't confirmed that the target for 2020 that you recently presented. I guess that probably, the difference is mainly coming from lower expectation on the CIB side. CIB was actually better than expected.

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Unidentified Company Representative, [2]

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Excuse me, could you use a mic?

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

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Yes. Yes. So sorry, (inaudible) from Paris.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [4]

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Because otherwise, they don't...

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Azzurra Guelfi, Citigroup Inc, Research Division - VP [5]

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Azzurra Guelfi, Citi. I have a question on the target. You haven't confirmed that the ROTE target of -- for 2020 that you presented last year. I assume that the difference is mainly coming from the CIB division, and the CIB actually was better. Can you explain us a little bit what's the work on the revenue and capital allocation for that division?

The second one is on capital. It seems that the regulatory environment, it's relaxing a bit on capital and several times have announced either buy back or filling pockets in -- with different category of capital. Would you consider starting the buyback earlier than when you announced the dividend next year if the condition are met? Or is this something that is for February 2021?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [6]

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I will take this question on capital and perhaps Séverin can comment more specifically on JV. Can I just also mention, first of all on the debt, we maintain the 9% to 10% target in the midterm? Let me just mention that this year, we will monitor the bank, as I said, above a 12% target. Of course, at the bank, it means some capital will not be deployed this year. And then effectively, it's more on the GBIS, the prudence is still on the GBIS. But again, Séverin and William can comment.

I'd like to just spend some time on the capital because I think it's very important. First of all, on the environment, as I said, it's a personal comment. It's -- but I tend to think, as I've said, the pieces of the jigsaw are being put in place step-by-step by Europe. And 2020 might be a crucial year to get visibility and maybe to have a revision of the way the market has been thinking so far. We'll have first the Basel implementation. As you know, the draft of the commission should be ready midyear or (inaudible). And I think we'll have a good idea of the end game, the final one main event with dialogue with the council. But still, it will give us much more clarity. Beyond that and beyond the fact that, of course, maybe in certain portfolios, I have in mind, for example, the large corporates, the bank's loss given default, which will increase just because there is not enough losses, so a bit behind the density. You will have many steps. First, the SSM is going to have achieved its TRIM exercise. So fundamentally, we'll be able to say to the market, "I'm done. I'm happy. It's harmonized. I'm very happy." Second, the stress test, and it's likely that the results, after a few years of additional capital, less NPL, et cetera, will be bad, which will be also a way to say, fundamentally, no need to put more capital in the system. So it means that even if you have a density which will vary, you will have then the benefits of the new CRD5, for example, on the composition relative to [us]. And the fact that, of course, naturally, the P2G, which covers all the risk, will now be inflated by the mechanical increase of the risk-weighted asset. And I think, and it's a personal comment, but it will be a way actually to comply with the fact there will be no significant risk so the Basel can be [lower]. So I -- again, at this stage, we keep the same target, the same capital monitoring. But it's fair to say the perspective today is better than it was with more uncertainty at 9 months ago.

Regarding our own share buyback program, the idea is not to wait for February 2021, obviously. Do we need to have approval, formal approval by the SSM? What we've been proposing has been, of course, let me say, presented. So now it's just also a question of process. That's -- Séverin, on GBIS, the outlook, how -- what we want to achieve?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [7]

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Yes. Thank you. (inaudible) for this year, we expect revenue for GBIS higher than what we delivered in 2019, thanks to good momentum we have still today and we observed last year, despite the deleveraging on Financing & Advisory, first, and transaction banking, second. And we have also an expectation to have better revenue on global markets thanks to the EMC integration, which was the impact on revenue last year was limited. So all that, meaning that we are expecting a revenue higher than this year -- last year, sorry. But as just said by Frédéric, we are also prudent and the level of uncertainty is -- on the global market is still there. We don't, for example, embed today the impact of the Chinese virus impact. It's too early to say today. So if it starts, very short-term, the impact will be limited. But we don't know what -- how long it will last. So it's just a sign of prudence in my mind.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [8]

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Tarik?

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Tarik El Mejjad, BofA Merrill Lynch, Research Division - Equity Analyst [9]

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Tarik El Mejjad from Bank of America Securities. So just a question back on capital. I mean, if we do quickly maths, I mean, your range is 12.6%, 12.9%, if we take the mid-range by end of this year. So this way, it would be 12.7%. You have an impact of Basel IV of 130 basis points. So take all that -- even if we take the -- out the floor as well. And if you use the Pillar 2 requirements relief, for you, it's around 80 basis points, and you already over-issued in AT1 and Tier 2, so it will cost you nothing in terms of EPS. So basically, you will be compliant to Basel IV in a pro forma basis by year-end. First question, does TRIM overlap with Basel IV? Or is it something extra?

And second question, how will be your thinking then about capital and dividend? I mean, some of the banks were very excited quickly and started to talk about free capital or special dividends. I mean, do you think for you it will be more an opportunity to actually restructure deeper the business because you'll have some money to do it without hurting necessarily the capital allocation on other divisions? And I'm thinking here about CIB. Can you go deeper into the restructuring?

And my second question is on consolidation. I mean, there's been -- I mean, every day, there will be some comments or some speech from ECB or local authorities saying that this is something that has to happen. So how fast do you think the banking union or EDIS will progress? And I think you said you want to play a role in that. So how do you see you playing this role, in what sense here?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [10]

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Perhaps, I will let Diony Lebot to answer more specifically your question. The overlap, yes, there is some, but Diony will comment. Can I just mention, from a strategic point, we want fundamentally to complete the restructuring, the refocusing, the major reallocation of capital from one business to the other at the end of this year? And as you know, the refocusing program, as well, has gone well. We will complete it, but it's 1 or 2 assets. It will be done. And we think that on the GBIS, and Séverin can elaborate, that we've done the job also. Now we think it can deliver and work and effectively deliver at least some profitability. Of course, the restructuring or the improvement of profitability will not end in 2020. As I said, in each -- the retail in France, we will not stop. End of 2020, it's done. The benefit of -- for the usage of digital will carry on. Boursorama, which is contouring client, will turn from still a negative figure to something very positive in the coming 3 years. The -- we will benefit further in the Corporate Centre of the disappearance of the legacy funding costs. What I mean by this, and I don't even put the flu, the influenza, what I'm just saying, at this stage, the idea is that we have done a lot and that this model should further deliver growth and profitability. If we were around, we would review. But I don't think that if you wish this new capital perspective, should in itself change the fundamental industrial strategic perspective. And again, let's wait. We are maybe more prudent. What I've mentioned to you at this stage is a perspective. We'll see. I tend to think it probably will happen, but let's wait to see that it has really happened to reconsider if any, the capital usage. I'll pass, Diony, on the TRIM and the interface with or the connection to Basel.

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Diony Lebot, SG Corporate & Investment Banking - Deputy Head of The Coverage & Investment Banking Division and CEO for Western Europe [11]

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Yes. So TRIM and the decisions we are expecting in the coming weeks and months will be, indeed, mostly on what we call the low-default portfolios, large corporates, the banks, markets. And that's where we expect also the bulk of the impact in Basel IV. So part of it is indeed overlapping, as the way we estimate the TRIM impact is basically applying LGDs, loss given defaults, which are closer to what would be under Basel IV, the rule and the foundation applicable in terms of LGD on banks and corporates. So indeed, we can say that part of TRIM is front-loading Basel IV impact. But at this stage, in our estimates, we have kept the initial estimate of Basel IVs to the 110 basis points. Part of it is in, indeed, overlapping at this stage, so we maintain a conservative assumption.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [12]

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Perhaps, again, Séverin, could you just come back to GBIS and the refocusing we've done there just to reiterate that we are confident that this business model makes sense as it stands now? And I can tell you that the perspective of the management team is that it's, today, stronger and more consistent. Can you elaborate a little bit on this, Séverin?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [13]

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Yes, of course. And I have with me Jean-François Grégoire just on my left, so perhaps Jean-François could be more specific on the global market. But very clearly, today, we have refocused our -- and adjusted our capital allocation to the area where we have a leading position, and it's visible if I must say, already in 2019. Just speaking about global and -- Financing & Advisory and global banking and advisory, this year, we made the deleveraging and you saw that the deleveraging is around EUR 7 billion uniquely in this division, among the EUR 25 billion risk-weighted asset decrease. Despite this deleveraging, we have made a slight increase in term of revenue, as mentioned by William earlier. So to demonstrate through that we have a real leading capability in some area where we are refocusing our asset allocation. So that's the first point. And we see still positive momentum for the next period of time on this part. We have also done significant refocusing on our global transaction banking activity, as mentioned earlier. We have invested a lot during the last few years, and now we are benefiting from that. And clearly, last year, as mentioned already, we have a 9% growth. But more importantly on that, the return on equity on that activity has been double last year, around 15%. Now we have still -- we have improvement, and this is for us also a lever where we are now good at and we have levered to increase, in average, the return of GBIS.

And of course, and I can let Jean-François comment on what we did on the global market, refocusing our 3 main activities: Investment solution, financing solution and specific core activities while we are differentiating the [factors]. And during that, we are also reallocating the capital within the global market on the area where we can deliver higher return. So now we have done the job, refocusing, exiting from activities we are not so good at, and keeping the leading position, the very good position we have in the market. The good news for me, as in 2019, we have maintained our capability to gain market share on the area where we have leading position. And this is very visible if I must say, as mentioned earlier by William, on the equity franchise. On the equity franchise, we have protected it, even if we are refocusing it on the solution investment, as I said, and financing activity. But we have gained market share in 2019 in the moment where we are deeply restructuring the global market activity, so something which is not so easy to deliver. But I would say that the fourth quarter is just the first demonstration what we had in mind to do.

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

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And Jean-François, yes.

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Jean-François Grégoire, Société Générale Société anonyme - Head of Global Markets Business Unit [15]

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Jean-François here. Yes, maybe just a few more words. So as we explained, so we have investment solutions, financing and the flow business. In investment solutions, this is our core DNA, where we have been awarded again the top position in -- by Risk Magazine in terms of our structured products. So that's quite remarkable in a year of transformation. And the second leg of this business is the warrants, ETF business, where all the teams are full preparing for the final integration that will happen very soon at the EMC integration.

Then on the financing part, this is the -- an area that is the most profitable part, where we increased our revenues and where we have our prime activities, mostly the clearing of futures and options, where there has been a very strong restructuring with actually same revenues but far, far less capital. And this was a very good outcome as well.

And lastly, on the flow business, equity derivatives, we say that we still -- we secured our top proposition, say, on this franchise, very important for us. And on the flow business, in effect, which was a bit an issue last year with a management overall that was very profound, we were able to grasp the opportunities in Q3 and Q4. And it's very satisfying to see that we are back on track.

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

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And perhaps, Tarik, on your question on consolidation, if you see, I think there's more clarity going forward on capital. I'm a little bit less -- more prudent on the banking union because here, you see still trends towards fragmentation, still inconsistency between the different supervisors, et cetera. So we'll see what happens in 2020. The jury is out really on this. So I mean, it's not for tomorrow, it's mid- and long term. I've already said that some consolidation should be a logical outcome of a completed banking union, which was part of the architecture, a more integrated market. The fact is, we see still markets which are pretty different. The dynamic are different. We'll see what the European Commission wants to do. We hear a lot about also capital market union. Whether or not it will be delivered, I don't know. It's a lot -- it's part of the agenda, it's clear but, I think, normal. And clearly, you need first to have clarity on Basel, on all the capital on that front to know whether there are, again, opportunities, which could create even more value than what you can achieve on your own. What is very clear to me, that on our own, we can deliver, I think, further profitability, further growth. It's very clear in my mind. And then we will see. And as I already said, they don't have so many banks which will be -- able to participate, but we need to have synergies, not -- we will not -- if you could adjust 2 retail banks aside from one country to the other, [0]. So now before the next 5 years, it's around more global businesses and, at the same time, with limits on balance sheet, you will not have EUR 3 trillion or EUR 4 trillion. It does not exist. So I mean, there will be conditions to do that. We will see. But again, at this stage, our focus is on our business model, to complete the trajectory for 2020. And we started to look at the 2021-2025 period with more visibility on all these parameters which were concerns for the market, which will -- I think will get -- be more and more clear and more visible and with the opportunity or not. But on our side, we are building also a strategy which makes sense absolutely on a stand-alone basis. Jacques-Henri?

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Jacques-Henri Michel Gaulard, Kepler Cheuvreux, Research Division - Head of Banks Sector Research [17]

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I have 3 questions. I'll make them quick. First one, can you remind us -- you probably gave the number, I'm really sorry, the ongoing restructuring costs that remain to be booked for 2020. And the sense of the question is linking to dividend, which is a little bit headache-y this morning for your payout policy in 2020. If I look -- because you're going to do a buyback as well and the total amount you're going to return to shareholders, dividend plus buyback, there is a case to say if you do a little bit math, that you will need, underlying earnings, growing by about 10% to actually get the same amount returned to shareholders. Is it something that you view as little bit too conservative? Or do you think you can actually deliver that, to return the same amount of money? It's a way to actually ask if you're going to cut this total amount returned, okay? And I think it's actually quite clear. You can at least give a little bit of guidance on that.

Third question, great to have a deep dive on sustainability in H1. Are you going to be able to give some clarity or a bit of information about the degree of climate risk you have with regards to -- or the sectors that are exposed to transitions and define your green policy? Because everybody -- every bank seems to have a different definition of what they mean by green and sustainable development funding.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [18]

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I will let William talk about the dividend and the amount of restructuring and let Diony, Diony Lebot, is also in the general management team more in charge specifically on the issues on the climate change risk projects, et cetera. William?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [19]

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So essentially, when you sum up what we incurred in terms of restructuring costs or what the plans we've announced this year, which is CIB plus the headquarters of International Retail plus French retail, the additional restructuring, which we have announced in a -- a few weeks ago, you end up with EUR 268 million plus EUR 55 million plus EUR 34 million. Some of it has been incurred as accounting provision, some is not. But I guess it's a detail. As far as this restructuring program are concerned, I don't expect more provisioning of any charge, and that is accounting-wise or otherwise. And as we said, we're in the ballpark of what we've given up.

Now coming to the dividend, the way we think is that we need to offer predictability on the dividend for shareholders. And this is the very reason why we moved to a payout on underlying because we think that you can project the underlying net income. What you can't project, obviously, is should there be a capital gain or a loss or a restructuring charge, should there be some in the next years. So that at least you can project through the noise. The way we think about it is we really think it's 50% distribution. If we do 0 share buyback, then you would calculate the DPS on 50%. If it is 10% share buyback, then it's easy to get it. When I look at the future, and based on what Frederic has said, which is there should be an increase in the underlying net income for next year, even taking the 40% and 10%, I don't recognize your math because I don't have the numbers you have done on your side, but I can say that it's probably well positioned relative to the expectations without share buyback.

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

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Diony, perhaps on the climate?

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Diony Lebot, SG Corporate & Investment Banking - Deputy Head of The Coverage & Investment Banking Division and CEO for Western Europe [21]

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Yes. So we have integrated indeed the assessment of climate risk in our risk appetite in the way we analyze vulnerabilities in our portfolios. We view it as not a separate risk, but a risk which is in a way aggravating a factor of credit risk, and that's the main area where we see exposure related to transition, and we have integrated in our risk assessment and the credit assessment of clients and sectors the risk associated to transition taking into account scenarios and common methodologies, in particular scenario related to transition allowing alignment with Paris Agreement. So first of all, assessing risk and vulnerabilities in our credit portfolio and most exposed sectors and it's already integrated in our risk management, risk appetite and rating of clients and will we be able to give more information of that.

Second part of our strategy and analysis is the transition in how we align progressively our portfolio and our risk to the various scenarios, in particular, to 2-degree scenario. And there, we have already communicated commitments and precise commitments, such as being totally off coal by 2030 or 2040, depending on the regions and reducing our exposure progressively to the foreseeable future. And in parallel, we have also taken a quite important commitment in financing the transition, and we are committed to finance up to EUR 120 billion of financing, either through direct financing of renewables or by arranging bonds, which are compatible with sustainable development goals. So it's twofold, reducing our exposure and analyzing our risk and accompanying the transition. And second, accompanying the transition by increasing our exposure and financing to renewable and sustainable financing. So it's a strategy, which is 2-fold, and this is what we are going to present risks and opportunities and how this is fully integrated in our strategy and our business development.

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

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Thank you, Delphine?

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Delphine Lee, JP Morgan Chase & Co, Research Division - Analyst [23]

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Yes, Delphine Lee from JPMorgan. Just 2 questions. First of all, to come back on capital, you had an increased P2R as of 1st of January 2019. Since then, you've done a lot of progress on capital. What are the conditions for that reversal or improvement? Is it the completion of your delevering program? Or I mean what are the key milestones you have to achieve to get that relief even without using Article 104? And related to that, I mean, if you get this relief at some point in the future and also in the context of CRD5, what level of capital would you be -- would you feel comfortable running at? I mean if you look at it in an absolute level, what kind of buffer on the [FDA]. I mean if you could give us a little bit of color, that would be helpful.

The second question is just going back to your [ROTE target, which now you're now committing to 9% to 10% for 2020. Sort of what has changed in the environment? It's just mostly rates or is there anything else that you want to tag, I mean? Because you've revised your French retail guidance already last year so I'm just wondering, the past couple of quarters, what has changed to lead to this change?

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

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Yes, William?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [25]

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Okay. Starting with capital and P2R, effectively, we're working towards reducing again the P2R, but as you know, first of all, the EUR 175 million is pretty -- when you compare it with the P2, the average. But second, there is quantitative elements and qualitative elements behind the P2R. On the quantitative elements, be it capital or liquidity or risk, I think it's fair to say that the ECB already recognized that we've made progress or we still have a very well run liquidity and risk. This is what they had already mentioned. On the qualitative assessment, it revolves around governance, some remediations, including on data quality, be it liquidity or risk. It revolves around the permanent comfort framework, which Diony is spearheading. So I think they all recognized we also have made quite significant progress in these areas. But it's -- there is a qualitative judgment into it in comparison with other banks, including some elements on business model. The stress testing, for example, the quantitative part of stress test, the future stress test to be run, it has an impact on P2G, but the qualitative elements of it are here; the speed at which you provide the data, the quality of what you provide, et cetera, is part of a general assessment. So we are working fundamentally towards having a better rating and going back to where we were, but we can't commit on it.

So -- which comes to your second question. What we are doing is steering the capital of this company so that at any point in time, there is around a 200 basis point buffer above MDA, be it in Basel III or Basel IV environment. And as Frédéric stated, maybe we are a bit conservative relative to others, but it happens that we don't count on a reduction of P2R. We're working towards it, but we don't count on it. We don't count on CRD5, although we think it's very probable. We don't count on anything nice on the software also, it's also in discussions. And obviously, there could be also a change in the requirements for P2G going forward. So what we want to do in our assumption is take a reasonably conservative assumption and that's how we steer capital so far. And -- but at any point in time, it's 200 basis points over MDA, which is EUR 7.5 billion capital buffer around it. If requirements decreases, I don't think we will want to go back to 300 or 400 basis points above MDA, which we'll adopt. And profitability...

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [26]

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Can I just -- again, we don't want to speculate on that. But fundamentally, if you think about capital, having to absorb a loss in a stress test. There's a kind of absolute amount to a certain extent. You can think that even if the risk weighted assets have been increasing, the percentage which represent, at the end of the day, the absolute amount should decrease. And so fundamentally, maybe the 200 basis points might at some point become significant 150 basis points because it's based on also a bigger risk-weighted asset now. So again, behind all the reasoning, I think, of the assets and everything around it. Now I think it's a little bit premature to change already a capital management policy while we don't have all this clarity. And perhaps, it's not that we don't count or we don't think we get it, but we don't compute yet, if I may say. The computing and the calculation at this stage, I think, it's a little premature, but clearly, in the last 6 months, there has been a series of announcements, speeches, which I think is changing the thought, like, let’s wait, let's wait. And for 2020, we'll manage, including with the buffer, which is one of the explanations behind also a lower return on intangible and beyond if it's severe.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [27]

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I'd say there are 3 components then to your second question and one is effectively rates because when we talked about 9% to 10%, it was before they took on decision of the ECB. Remember that with Philippe Aymerich we had said initially that we were expecting revenues to grow slightly in French Retail, and then we came back to you and said, this -- and given what's happening is probably another picture so it's expected to be another red 0 year, so 0-minus. So if you take 1% revenue growth for French retail, that's about EUR 80 million to EUR 90 million. If you take minus 1 it's EUR 90 million as well. So add that plus 1, minus 1 is probably not far away from the difference as far as this is concerned. Non-capital base, between 12% and 12.7%, it's a good EUR 2 billion difference. So you need to have EUR 200 million net income to make it work at 10%. And then I don't want to repeat what Séverin has said. We see some growth in CIB next year. We see -- we are very confident on the reduction of cost. Fundamentally profitability of CIB, as far as we are concerned, will be more based on the cost reduction and hope on the revenue outlook. But then you end up with the number you compute depending upon that assumption on the revenues of CIB. We obviously think things will improve based on a modest improvement on revenues and then we will move very systematically.

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Omar Fall, Barclays Bank PLC, Research Division - Analyst [28]

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Omar Fall from Barclays. Just 3 questions. So just on the buyback size. Can you just highlight what the constraints were in terms of that size and the decision-making process? So why 10% of earnings and not half of the payout? Is it something that's come up in the discussions with SSM or looking further forward, that's not really a set maximum?

And then the second question is just on International Retail and the top line trends there this quarter because if we look at Slide 56 and 57, pretty much every division this quarter has seen a slower rate of growth in revenues compared to the full year. So is there's something specific to call out, some additional margin pressure, something like that?

And then the last question is just to help us with our modeling on the expenses. So basically, you had EUR 17.7 billion of expenses and then we removed the EUR 300 million of restructuring costs this year. You have another EUR 300 million of cost savings from CIB and then EUR 300 million also from the EUR 1.1 billion old cost savings plan. So we're at like EUR 16.8-ish billion. So is it as simple as us just applying what we think wage inflation for the group is, 2%, 3%? Or are there some other factors that we need to think about over and above that?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [29]

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Okay. I will let William answer on the cost and Philippe answer -- and Philippe answer on the International Retail. Yes, I really take the (inaudible). There was absolutely no constraint from the SSM. As you know, in these sub-type balance, we do a different job for different shareholders, some which still prefer a cash dividend, et cetera. And with 10%, you should think that we do it at least for something like 2 years. Roughly, you then take out the dilution coming from the scrip dividend. So for us, but not a stupid figure, and to try to match also the implication of all shareholders. So nothing more in that balance. And perhaps Philippe on the trends in International Retail?

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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [30]

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Yes. So good afternoon, everybody. So on the trend in International Retail, you have seen that on a full year basis, what is striking is that we manage to offset the effect of asset disposals. And this is quite an achievement. So this is an underlying trend is that on a full year basis and at constant parameter, we increased by 5% revenues. So you may have noticed a bit of a kind of slowdown in Q4. So it's safe to say that we have 2 elements there to mention. First, in insurance, in spite of the very good commercial activity and realize that the premiums increased by 8% that we ended up with EUR 125 billion of AUM. So in spite of the very good commercial activity, we had more claims in Q4, and that's why for the first time, we had declining revenues in insurance in Q4. Second element to mention is around Czech Republic where we have some kind of subdued Q4, the effect of more, let's say, dynamic volumes in Q4, some tension in spreads, it's true. We have also the effect in Czech Republic of an inverse interest rate curve, long-term interest rates, they had around 1.7% while they shot them at 2%. This is a sign of the strong appetite of investors for Czech bonds. But having said that, the trend for -- and it is confirmed today by Jan Juchelka at the same call he organized today with investors in Czech Republic. We have a positive outlook for Czech Republic. So down the road, firmly, what I can say is that we have a pretty good sense of the trends in revenues for International Retail.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [31]

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Thank you. And William on the costs?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [32]

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I'm going to disappoint you because I won't give you the number we have in the budget, the exact number for cost reduction but because I do think you have plenty of things to model. But maybe I got you used to it. We've said CIB towards 6.8%. We've said French retail, cost base of French retail is about 5.7% will decrease in absolute terms. Okay. You can assume, because you know us, that we charge the vast bulk of the corporate functions into the businesses, that there is no mystery of cost that could increase as well -- about some cost of remediations, which Frederic has mentioned, but will remain overall for corporate center in the ballpark of what you know and what you get used to. And so you should expect some cost growth in Internet retail and financial services, which is consistent with the fact that this is an area where we've been growing consistently at about 5% a year, and taking also in consideration that in the countries such as Czech Republic where you have a 2% unemployment rate based on the system-wide inflation. But as Philippe reiterated, we want to keep positive jaws there. So you can make your assumption, we'll take what employees -- the growth rate you consider around this 5%, take positive jaws and assume the rate of growth of costs in International Retail and Financial Services. And I think with that, you should have all the elements that leads you to the fact that there should be a decrease in absolute term in the cost base of that group again next year, combined with positive jaws. That's how I would say, you have plenty of information.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [33]

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Okay, yes, mic.

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Kirishanthan Vijayarajah, HSBC, Research Division - Analyst [34]

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Kiri Vijayarajah, HSBC. Can I go back to the revenue growth you are targeting in GBIS? Is it fair to assume you also talked jaws between revenue growth and RWA growth in GBIS? And linked to that, on market risk, this time last year you had very elevated market risk. And through the course of 2019, that kind of normalized, so that was going to be a useful tailwind in managing the RWAs down once you put a benefit to GBIS. So my question is looking forward, is that kind of normalization on the market risk models now played out? Or are there some other kind of tailwinds able to help you there in terms of RWA efficiency on the GBIS side of business?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [35]

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And we'll benefit from having both Séverin and Jean Francois on the floor now but the normalization of market risk is not just a question of smart modeling. First of all, normalization in the market conditions, and so we are back to '13, '14. But I will say, as we already mentioned, steering the capital of this company, we take a little buffer above that because we know that the marketplace should -- normally should move a little also because there is a bit of stress in any given quarter or because Jean Francois' produced a lot and then, of course, we have a bit more market RWA. There are some optimizations which we have done in the form of the type of exposure we take and some risk limits, some better computation of the release, which help us, for example, to reduce the [RRC] component of the market risks through a better tracking of collaterals and these things. But maybe Jean-Francois will be able to get more in details, but fundamentally, this is due to the fact that things have normalized. To your point on sort of the operating leverage, I mean you're totally correct, but we had already said back in the deep dive on CIB is that expect RWA to have a very limited growth as far as CIB is concerned. So if listening to Séverin who repeated that we expect some revenue growth relative to 2019, you can deduct from it that this is very efficient RWA at work, an increase of return on RWA that we are obviously targeting. I don't know Jean Francois if you want to add something more on market risk?

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Jean-François Grégoire, Société Générale Société anonyme - Head of Global Markets Business Unit [36]

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Yes, yes, you said it -- or actually the EUR 8 billion, the decrease that we got this year has been obtained through active deleveraging. So a discussion, for example, with customers on clearing activities where we renegotiated some collateral and managed to get much more collateral, so less RWA. And with the good outcome, actually, to almost not lose any customer on our business. Then on some exotic activities, there has been a lot of work to hedge the book and arrange them differently so that they are less risky. That's, for example, on the credit exotics. But then it happens that, yes, there could be some fluctuation if we enter into a crisis, but we are quite happy to have implemented a discipline that will be maintained through quite sophisticated schemes that are playing to all traders around the world with incentives to -- on a day-to-day basis, really incentivize them at their level to optimize and track all unnecessary risk in their daily trading. So this is something quite new, and we think that now we are at a very sophisticated level based on our experience of how we want to manage that going forward.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [37]

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Thank you. Next question, perhaps a question also --

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [38]

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We'll take the last question in the room and then answer the questions on the phone.

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Gregoire De Salins, Morgan Stanley, Research Division - Research Associate [39]

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Gregoire De Salins from Morgan Stanley. One question on Boursorama. You have acquired around 4,000 clients since 2018. How do you assess the level of cannibalization risk with your traditional banking first? That's my first question.

And second, how do you assess the level of competition or the competitive pressure from banking players like Revolut and N26 which are gaining a lot of market share in France?

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

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I will let Philippe Aymerich answer. I'd like to insist, we talk here about a different business model. Revolut is fundamentally so far a payment of credit card. Here, we talk about a much more complete business product. Philippe?

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

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Yes. Good afternoon to everybody. Yes, of course, we track the number of clients from Societe Generale, who become clients of Boursorama because, as you know, to become a client of Boursorama, actually, you need to have an existing bank account. So it's quite easy to track. And basically, the market share of the new clients of Boursorama coming from Societe Generale and Credit du Nord is exactly the market share of Societe Generale and Credit du Nord. So there is no cannibalization, I mean, especially.

Regarding the competition from Revolut or N26, as Frédéric mentioned, Boursorama is a different kind of bank offering a very wide range of products and services. So we are tracking very carefully many KPIs, especially, of course, the cost of acquisition. And this year, again, I mean in 2019, the cost of acquisition has been reduced. We also track, of course, if the number of products subscribed by the clients, the amounts of credit and deposit year after year. And it's still a very good momentum there. And the third important KPI, it's, of course, operational risk, because last year, we have acquired more than 500,000 clients. And of course, we have to be very careful with operational risk. And this one is also under control.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [42]

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Thank you. So perhaps we can go to the people on the phone.

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Operator [43]

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(Operator Instructions) And the first question comes from the line of Lorraine Quoirez from UBS.

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Lorraine Quoirez, UBS Investment Bank, Research Division - Director and Equity Analyst [44]

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The first thing I would like ask is, I don't know if you remember, but I think a few years ago, when you IPO-ed Amundi, you did disclose what was the ROE impact of actually disposal of Amundi. So I was wondering whether you could actually quantify the ROE impact of the disposal that you have made so far? And also, as you've done a number of disposals, I was wondering whether you could actually update us with the tax rate guidance for 2020 onwards?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [45]

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Thank you, Lorraine. William, on the -- do we have -- we disclosed the total amount?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [46]

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I think we can give you a proxy and repeat what I think we had told you but with more updated numbers with the 57 bps, let's call it, 60 bps. So it's around EUR 10 billion -- sorry, 60 bps divided by 3, you can make your own computation in terms of RWA and enhanced capital. That's what we create with the disposal we've announced. We have an impact of about EUR 220 million, EUR 230 million of net income. We have, on the other side, the acquisition of EMC, which we've told you would cost about 10 bps and would represent around EUR 100 million post-tax of earnings. So when you sum it up, knowing that EUR 100 million of net income is about 22 basis points of ROTE, you can square out the equation.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [47]

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And another way maybe to answer your question and then we will answer to the tax rate. But when you look at the International Retail Banking and financial services, you see that the return on normative equity has remained absolutely similar. So yes, we've lost some contribution but not at the detriment of the return on normative equity of the division. Perhaps on the tax rate, William?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [48]

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Well, I think we -- it's very consistent with what we had in the past years, except that you have -- for the adjustment, you have to make on the implementation of the new accounting rules, IAS 12, for the coupons. So we ended the year, if I'm not mistaken, at 23.7% tax rate group level. You add roughly 400 basis points and you come back to the range that we've guided to back in November 2007 (sic) [2017]. And for the next years, you should expect something very similar.

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Lorraine Quoirez, UBS Investment Bank, Research Division - Director and Equity Analyst [49]

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Sorry, excuse me, so the target, the tax rate for next year is between 26% and 28%?

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [50]

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No. The tax position is 23.7%, okay? I was just adding back the impact of the new accounting of coupons for you to be able to compare with the previous guidance that we had set forth in 2017. So now that we are with a new accounting regime, you should expect something very similar with what we had this year.

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Operator [51]

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And the next question comes from the line of Pierre Chedeville from CIC Securities.

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Pierre Chedeville, CIC Market Solutions, Research Division - Analyst [52]

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One question regarding the P&C. You mentioned in your slide that you had an increase in your P&C claims this quarter. Could you give more color on that increase? And regarding the global reinsurance business, what is your policy regarding future development and particularly towards SMEs? Do you have any ideas on what particular types of customers and your franchise in insurance in France and Europe?

Regarding Lyxor, as far as I understand, you developed particularly this year in active management more than in passive management and particularly in terms of net inflows. Maybe I'm wrong, but it's what I understood through some articles I read. Do you confirm this? And if it's the case, how do you see this active management development within Lyxor in the framework of your partnership or future new partnership, I would say, with Amundi, what is exactly -- what are you doing exactly in this area?

And as I am in France and not invited in the different -- this year, I will ask a third question, if you may. What is your view regarding mortgage in terms of production this year, increase in production compared to your mutualist peers. Do you feel that you are losing some market share here or not?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [53]

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I will let Philippe Heim answer on your question on insurance and perhaps Séverin elaborate on Lyxor and the development of the collection. Philippe Aymerich will answer specifically on Societe Generale. Can I just answer your question on mortgage with my hat of Chairman of the French Banking Federation just to mention that you know that there are some developments in the market, in particular, with some recommendations of the committee who committee-ed the segmentation last year, which has recommended FRTB to avoid at least going further into longer maturity, being careful on the -- what's the name in the -- the percentage of salary you can dedicate to the reimbursement and also on the margins. So I think these recommendations fundamentally go in the right direction from our perspective to have a little bit more discipline on the market. Perhaps Philippe Heim, first on Insurance, P&C, first of all, the higher impact. And more generally, the -- with the SMEs, I guess, you talk maybe about retirement schemes, things like this, (inaudible). Philippe?

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Philippe Heim, Société Générale Société anonyme - Deputy CEO [54]

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Yes. Sure. Thank you, Pierre. Some (inaudible) regarding what happened in Q4. So yes, we had more claims. So let me highlight that on the commercial side, we have premiums up by 8%, with double-digit growth abroad. So regarding claims, this is a phenomenon. That was widely shared by other players in France is related to climate events, namely drought. We have -- and the -- this summer, and also some specific individual cases. So I would say that this is a statistical event. So in the long run, it is absorbed by our reserve. Bottom line, keep in mind that we have an insurance business delivering a return according to our computation (inaudible) tariffs for 25%. So a very good performance. So from a static standpoint, we cover, let's say, many types of products. You mentioned particularly to SMEs on professional (inaudible) one of our key objectives and maybe which is something I share with Philippe Aymerich is the French network. The point is to cover the needs, for example, of our clients, Credit du Nord and Societe Generale. And this is currently an element of development because, as you know, we want to increase the recruitment rate of our clients and it is supporting our strategy, (inaudible) to increase our commissions in the networks.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [55]

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Séverin, Lyxor, can you elaborate perhaps on the connection of new assets under management?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [56]

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Yes. As you know, Lyxor has 2 businesses, I mean this is not new. Lyxor has historically built an ETF franchise and have also developed an active asset management activity for a while. Lyxor had a good year this year in terms of active asset management, thanks to good commercial performance and a good collection of new money. So the total asset under management at the end of last year is EUR 149 billion for Lyxor. Among this, you have EUR 70 billion on the active part. And yes, active asset management. So we had this year, a better year on active asset management than on ETF. The reason is the market of ETF in 2019 was mainly driven by fixed income (inaudible) as you know. And historically, I've seen today, Lyxor is more geared on equity-based ETFs and European equity-based ETF. We are developing today and enlarging the mix product and the offering of Lyxor ETF on fixed income. But it's fair to say that this year, we didn't benefit from the dynamic of the market of ETF in Europe because it was mainly driven by fixed underwriting products.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [57]

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Philippe Aymerich on our market share in mortgage?

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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [58]

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Yes. You know that for us, what is critical, it's our market share on mortgages on our core clients or core targets. And in 2019, I think we really had a good mix between volume, you have seen that our mortgagees' outstandings have increased by more than 7%. So a good mix between volumes, pricing because we have been able to increase our margin, and risk policy. So maybe, overall, there is a slight decrease in our market share, but not on our market share regarding our key clients. And I think regarding the measures, which have been announced, I think that will have no major impact to us. For example, now in France, it's not possible any longer to underwrite mortgages above 25 years. And we didn't do that before. So there is no change for us.

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Operator [59]

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And the next question comes from the line of Stefan Stalmann, Autonomous Research.

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Stefan-Michael Stalmann, Autonomous Research LLP - Partner, Swiss and French Banks [60]

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I have 2, please. The first one is there was recently an announcement that you are setting up a low-cost offering in your networks. I think it's called [Capsule]. I was wondering if you could talk a little bit about what the rationale here is given that I would have expected this to be the natural domain for Boursorama to offer.

And the second question regarding your future dividend accrual policy for CET1 capital. In 2020, during the year, will you be accruing for 40% of your underlying profits or 50%?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [61]

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Philippe Aymerich to answer about [Capsule] and then William on our accrual policy.

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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [62]

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Yes. So [Capsule], I mean what it is exactly, it's redempting at the offer for the mass market. It's not competing directly with Boursorama because in the case of Boursorama, it's 100% digital banking. In the case of Capsule , we are addressing clients who are also okay to pay to have an access for -- to the branch and to an adviser. So basically, it was an offer which was -- which existed before. We have adjusted it. We have actually repriced it, including some fees depending on the level of intensity of access to the branches. So it's not exactly the same clients we are addressing because in the case of Capsule , these people still want an access to the branch or to an adviser at least by phone.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [63]

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Thank you. William, on the provisioning.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [64]

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Stefan, I see the simplest way for us would be to provision 50% and then maybe adjust in the fourth quarter, or whichever is the number according to the share buyback. I think it's also better because then there will be a better consistency between the prudential reporting and the financial reporting as far as dividend is concerned -- capital is concerned.

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Operator [65]

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

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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [66]

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A lot of the questions have been answered, but just 1 last. Just wanted to understand in CIB just generally describing the revenue environment and the opportunity set and how you feel about -- so a lot of the industry had a better, let's say, second half of the year and even in the second quarter. Just wanted you to describe what you believe the opportunity set is, like, right now, how maybe January compares and how normal you believe that the latest flurry of reserves have been versus depressed last year or essentially trying to give us a sense of how repeatable the performance which is currently showing in the numbers for the last couple of quarters is versus what has been in other times because we know it's very cyclical and it's difficult for us to understand what market conditions are like?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [67]

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Jean-Francois, we will not comment on every model. Perhaps, again, Séverin could you recap the way we see our perspective on a yearly basis, I would say, on a structural basis, maybe?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [68]

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Yes. If you look at the recent and the last quarters' dynamic of the market, I put aside the global market and Jean-Francois already commented on that. But the other franchise we outlined today are mainly the asset finance franchise, restricted finance franchise and the asset-backed product activities and the transaction banking activity. So having said that, we don't feel today to question, then what would you share? We don't feel that the pipeline on the different activities is just decreasing. Where we have the deleveraging -- we have been delivering our balance sheet during the year, which impacted the NBI, as we saw, limited impact. But globally speaking, the market dynamic is (inaudible) and we are broadly, of course, you have some seasonality in the last quarter -- the last quarter of '18 was a very good quarter for our asset finance activity. This last quarter wasn't so good, but at the same level, not better than the last one. But the general trend determine -- has natural resource finance, infrastructure finance, real estate finance and restructured finance. And all of that, for the time being, is still positive in our feeling, in our view.

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Operator [69]

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The next question comes from the line of Guillaume Tiberghien from Exane BP Paribas.

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Guillaume Tiberghien, Exane BNP Paribas, Research Division - Head of the European Banks Team & Analyst of Banks [70]

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I have 2 questions. The first one is on the AT1 coupon, which I think were quite high at EUR 715 million. Do we assume that this stays at this level? Or is there anything you can do on that front?

And the second one is, again, on the tax rate, you're assuming broad stability from the new calculation. But what about the macro cut rate, when are you -- can you remind us when that should -- or what impact that should have on you maybe in 2020 and even more so in '21?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [71]

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Sorry, Guillaume, you mentioned...

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [72]

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The what? The reduction in...

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [73]

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Of pretax.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [74]

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Well, I guess this one is for me. So the first one, I think you should assume around EUR 700 million deduction on coupons. I mean this was EUR 500 million, pretty stable up until there was this change in the computation. We don't change -- we will not change materially the stock of hybrids over time, certainly not in the reason of projection that we're talking about year 2020 and even a few years after. So I think that's pretty much a ballpark.

On the tax rate, you're right, but we -- you have to take into account many things, and the tax rate in France, effectively, will start to decrease gradually. Then you have to take into consideration the geographical mix. There are areas, obviously, where the taxation is less. There are areas, it's more, depending upon the region. And in the U.S., as you know, there's less tax deductibility of the intercompany flow. So all in all, that's what makes me think that should you do your computation, it's pretty much at the same ballpark.

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

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It will increase a little bit.

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [76]

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It will decrease a bit.

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

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I think if I remember well, it's 33% in 2019. 31%, I think there is already a slight decrease in 2020. And I think the end game is 25% for 2020. I don't remember, to be frank, what is the tax rate in 2021. But I think it's in the middle. So that will be -- that will help to a certain extent. But that, again, not a big change.

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Operator [78]

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

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Flora A. Benhakoun, Deutsche Bank AG, Research Division - Research Analyst [79]

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I have 2 questions on CIB revenues, please. The first is regarding EMC. I think you stated the last time, after the Q3 call, that you expect to see the real start, the kickoff of the consolidation of revenues from EMC in February. So the first question is do you stick to that? Like are we going to see an uptick in equities revenues with the consolidation from EMC from Q1 '20 onwards?

And the second question is on the deleveraging just to check a few numbers with you. I think the deleveraging impact in Q3 was around EUR 70 million, which is consistent with the full year guidance of EUR 300 million, and it was a bit less in Q4. So just wanted to ask how I should think about the deleveraging impact from here?

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

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Séverin and Jean-Francois Gregoire, could you answer please these 2 questions?

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [81]

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On EMC, what I told you at the end of the third quarter, that in 2019, the revenue impact was very limited. What we transferred mainly was the ETF part on Lyxor. And we had our, on the other side, the cost impact this year and 2019. And I remind you something which has been mentioned earlier that there is a risk for integration costs, which is then likely cost in our cost base, not included in EUR 268 million which has been disclosed. The risk pipeline cost is also (inaudible) in 2019 are linked to Lyxor integrations.

For 2020, we are still in the process to integrate the bulk part of what we have to do in the first quarter. We don't have (inaudible) in the impact in the first quarter, is this your question? The first quarter revenue is spread out, but we would start to see the revenue back on the EMC integration. Starting on the second point, we are still in that roadmap. And what -- we confirm what we said that we didn't guide on the revenue impact in the EMC integration and guided on the gross impact from 2021 and confirm that's the year probably have a strong model and EUR 50 million in terms of gross operating income, not this year, from 2021. And regarding the derivative, your question is around the NBI, in fact?

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [82]

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Yes, the NPI in the fourth quarter, which was a little bit lower, apparently.

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [83]

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I don't -- so the impact from the fourth quarter of has been...

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [84]

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And what we can fundamentally -- Séverin, what we can expect in 2020 as into...

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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [85]

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Well, it's a question maybe we misunderstood, but effectively, I mean, there is a small impact of finalization of additional deleveraging in CIB, but we have already exceeded by far the targets that we had set forth for 2020. So you should expect there's no more. Now we are going back to the normal consumption of CIB. And as we said, RWA growth of CIB will be very muted. I mean, it's been already articulated at the beginning of the year in the deep dive of CIB.

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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [86]

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Yes. And 1 point to add on to this is the main impact on the NBI was the plethora of other commodities' activity. And it's fair to say that we had in 2019, only 3 quarters, in fact, because the first quarter, we weren't already there. So roughly speaking, there was still a negative impact on the first quarter of 2020 compared to 2029 (sic) [2019], which is the full impact of the commodities' activity and deleverage.

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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [87]

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Okay. No more question on the line. Well, thank you. We will close this conference call. Thank you very much for your time. Thank you. Bye-bye.