BNP Paribas SA (BNP) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas Third Quarter 2026 Results with Jean-Laurent Bonnafe, Group Chief Executive Officer; and Lars Machenil, Group Chief Financial Officer. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnparibat.com. [Operator Instructions] I would like now to hand the call over to Jean-Laurent, Group Chief Executive Officer. Please go ahead, sir.

Thank you. So good afternoon, ladies and gentlemen. We are proud to present very strong third quarter results which further strengthened our conviction that we will beat our 26th trajectory. We are well on track towards our 2 target of double-digit earnings growth CAGR of 252. We expect to reach a CET1 ratio in excess of 13% at year-end, and we are pleased to announce today that we'll launch next Monday, our EUR 1.3 billion share buyback program as part of the 26 distribution. As you know, we are finalizing the preparation of our next strategic plan, which we'll present to you on the second of February next year. We are vigilant, given the current political environment, but the reality is that our group continues in the direction that we have set. Our reliance on France is limited as we are very internationally exposed. We are working on growing our corporate institutional and append client franchise in CIB, CPBS and IPS, and we are preparing our next strategic plan, including our efficiency plan. These are our priorities. I will now discuss all these elements, starting with a summary of our results on Slide 4. Q3 was very strong. Revenues rose at close to double digit with a particularly strong performance of CIB and CPB and a solid performance of IPS. The jaws effect accelerated further at 4.1 points, and our cost income ratio improved more than 2 points, in line with the trajectory we envisage in the next strategic plan. Cost of risk was stable at 39 bps and remains within our guidance of less than 40 bps, which we observed through the cycle. All in all, this means that operating income was up nearly 18%, and net profit was up nearly 14%. By now focus on our capital, our CET1 stands at 12.9%, reflecting the acquisition of Oslo but we expect to be strictly above 13% at year-end. And we'll be launching -- next Ponde, our share buyback program of EUR 1.3 billion in anticipation of the distribution of 26 earnings. Let's now move to Slide 5, which is a reminder of our cost savings ambition in the next strategic plan. In -- after 3 quarters in 2016, we have achieved EUR 540 million of cost savings, and we are well on track to reach our savings target for this year of EUR 700 million. the savings will further accelerate from next year, reaching EUR 1 billion per annum, equivalent to about 3% of our cost base underly or EUR 4 billion cumulative over the 4 years of the strategic plan. As we indicated to you, we are preparing this year a transformation of our support functions, and we anticipate savings between 15% and 20% of the cost base. This will represent about 60% of our total EUR 4 billion cost savings over 2013. We now move to Slide 6 and reminding you targets. After a strong first 9 months of the year, we confidently we confirm both our 26 and 28 trajectories. Given the strong progress we have already made towards exceeding our 26 target, we're fully focused on accelerating EPS growth and delivering on our double-digit growth target over '25, '28. We expect our return on tangible equity to exceed 13% in 2018, and this will be driven by strong revenue momentum, very well illustrated in the third quarter, but also tight cost and risk weight discipline. We'll come back to this later. Our strategic plan will be presented on the second February, followed by deep dives throughout the year, starting with CIB on the 25th of February. Our return on tangible equity and cost income ratio targets will be much improved compared with our 28 ambition, and this will allow us to accelerate our distribution based on a strong capital position. This strong capital is well illustrated on Slide 7. As you can see, our capital path has improved regularly in the last 15 years, and this has been combined with increased distribution to shareholders. We also expect our CET1 to exceed 13% at year-end and will consider additional distribution on an annual basis and will provide more clarity on the second of February. Let me now hand over to Lars. We will present our third quarter results on Slide 9.

Thank you, Jean-Laurent. Good afternoon, everyone. I will now spend time on Slide 9. As you know, all our numbers but all of our aggregates are very strong this quarter, and our cost-to-income ratio improves with more than 2 points. Over the first 9 months, our cost-to-income ratio fell to 59%, underpinning our target of 60% for the year. Let me now move to Slide 11, where you see that our revenues are up 9.5%. Let's look at the divisions, CIB first. CIB had an excellent quarter with revenues up around 17%. And they basically up in all 3 divisions. First, Global Banking accelerated sharply in the third quarter as we anticipated in the second quarter, and we maintained our #1 position in EMEA investment banking amongst European banks and gained over 60 basis points market share. Secondly, Global Markets was particularly strong, up 22%, including a 550% pickup for equity and prime services with revenues exceeding those of Fig this quarter and highlighting strong client appetite and client franchise. Turning to FIC, revenues were stable at a high level, supported by APAC and ForEx product. Finally, the third division, Security Services grew 18%, taking advantage of high market levels, volatility improve margins but also the ongoing client onboarding. That's the first division. Now look at CPBS, up by about 4%. As Jean-Laurent explained earlier, our Eurozone commercial banks are enjoying very strong top line growth and once again, a double-digit net income growth on the back of an interest rate environment that, as you know, is quite favorable for us, notably, thanks to the stability of our nonremunerated deposits. Moreover, client activity was strong as illustrated by the healthy uptick in financial fees. Moreover, the specialized businesses benefited from improved volumes and margins when it comes to Personal Finance. Regarding Arval, let me start with the underlying momentum, which remains very strong. So organic NBI growth was 12% and supported by fleet growth of 6% and growth in outstandings of around 7%. This strong momentum is currently being impacted by headwinds in the used car market across the industry. elaborated by the geopolitical environment, leading to higher fuel prices. And these higher fuel prices mainly affect ICE vehicles. Given the limited visibility on the contract in the Middle East, our current assumption is that the trend in used car prices might continue. Having this in mind, and given the average 2-year life cycle of the vehicles, it would be reasonable to assume that the benefits from at integration will be offset by used car sales. So with Arval and Leasing Solutions gross operating income remaining broadly stable in 2027 compared to 2026. And this before a pivot that is to come in 2028, which is based on the repricing of the vehicles of 2024 and a further improvement in 2029. So no impact on our 2030 objectives. So having said that, Arval is actively managing the environment through lease extensions, international remarketing and vehicle releasing all shown strong traction. Adlan will also improve the mix with EVs representing 31% of its fleet at the end of the third quarter. And importantly, our long-term objectives, as I mentioned, remain unchanged. Used car sales should trend towards 0 over time, making our walls earnings increasingly driven by fleet management and recurring revenues rather than used car sales. At group level, our diversified model also enables us to offset this headwind, notably to strong performance of CIB and the positive revision to our corporate center guidance. So that's C PBS, if I turn to the third division, IPS. Revenues were up 5%, thanks to strong commercial momentum, and we are pleased with the solid ramping up of the AXA IM integration. If with this, we move to Slide 12 and 13, where I would like to discuss our cost trajectory. So if you look at 12, our jaws were very strong this quarter, 2.8 points for the operating divisions and 4.1% at Grupo. All our businesses, except obviously Arval and Leasing generate positive jaws between 2 and 11 points. This is something we are particularly proud of as you can see in the performance of all the businesses at the bottom of the slide. At group level, we are on track for substantial cost income ratio improvements, still trending to below 56% and 28 laying a firm foundation for our next strategic plan. If with this, we turn the page, we go to 13, where we show a chart you know well that reflects our cost savings, EUR 200 million this quarter reaching EUR 540 year-to-date. The cost income improvement is particularly impressive in CIB, but we are also very pleased with strong progress in the Commercial and Personal Banking in Europe and Personal Finance. IPS will obviously benefit in 2027 from the significant acceleration in the synergies from AXA IM and the restructuring charges booked in the Corporate Center will reduce. So let me now take a look at the asset quality and our risk level profile on Slides 14 to 2016. 14, where you see that the cost of risk stands at 39 basis points this quarter -- quarter-over-quarter and year-on-year. Compared to last year, the Stage 3 provisions, so the ones that are really linked to nonperforming loans are lower due to a specific file a year ago. Moreover, we did not benefit from Stage 2 releases as we did last year. So intrinsically, that is the evolution. So stable in basis points, but intrinsically an improvement on the S3. So bar an unforeseen step-up in geopolitical tensions, we anticipate the cost of risk to be below 40 basis points over the year 26. If we turn to Slide 15, we remind you of our diversified risk profile by sector, but it is also true by geography. So as you know, but we repeat that we do not depend much on France, given the European and international profile of our client franchise. And given our platform, we are more and more international every year. If I illustrate 10 years ago, France banking was 20% and now it's 10% and below. Moreover, our exposure to French sovereign is very limited with only EUR 3 billion of sovereign exposure that is at fair value via OCI, not even P&L. So if we this, we end the review on Page 16, and you will see that both our commercial and private banking in France and Belgium normalize from a low base. and Global Banking also normalizes from a high base, what I mentioned earlier a year ago. Overall, we remain comfortable with our strong asset quality, which is stable at 39 basis points, as mentioned before. If we did, we leave the cost of risk and we go to the capital. So if you can move to Slide 17. So our common equity Tier 1 reached 12.9%, and this evolution of 10 basis points comes from the following. So first of all, there is 40 basis points that is added to net income, net of RWA growth. Of those 40, there is 25% that is called return to shareholders. And then there is 10 basis points related to the OCI movement given the spreads that we observed since August in the banking sector and then there is 15 basis points from the acquisition of Atle. So intrinsically, that leads to this evolution. And as mentioned in the fourth quarter, we will continue to strengthen the net income, but will also benefit from the disposal of BMCI that is to generate around 15, 15 basis points. And as well, we will see our accelerated capital generation and RWA optimization, which typically falls at the year-end and as such, we expect to exceed the level of 13% at year-end. And all this paves the way for accelerated distribution. So as such, it stepped up earnings, stepped up capital and therefore, we feel comfortable to launch the share buyback on 10% of the full year results already in November, so next week. So if with this, as a reminder on Slide 18 -- and there is actually even more to come. As the SRU, so the Saban Invest Union, which is -- and in particular, the securitization framework are progressing very well and are likely to get into force at the beginning I remind you that this Save and Invest Union represents a significant opportunity. Well, on 1 hand, for BNP Paribas, but also for CIB, where the originate and distribute model of CIB, but also the asset gathering platform of IPS further strengthened with BNP Paribas Asset Management new and leading alternative asset capabilities. And that's not only the fact to CIB and IPS, but also CPBS is very well placed to increase with all these levers its financing in the real economy. And so let me terminate with the compare Center on Slide 21, where once again, we have improved the guidance of gross operating loss after a 9-month performance that was better than anticipated. And we, therefore, as I mentioned just a bit earlier, we adjust our gross operating income trajectory from minus EUR 1.2 billion. We improved it by EUR 200 million to minus EUR 1 billion. I'll now hand it back to you, Jean-Laurent.

Thank you, Lars. So to conclude, third quarter 2016 results are a very clear illustration of our acceleration, while delivering strong balance and resilient earnings growth with group revenues up 9.5% and an excellent cost income trajectory. Our 28 return on tangible trajectories on the fast track, supported by strategic levers that are already being executed. Our earnings growth is accelerating towards a CAGR of more than 10% over 25 28. And with our CET1 trajectory, we'll consider additional distribution on an annual basis. On the second of February 27, we will announce the main targets of our next plan, taking us to 2030. We are well advanced in our preparation with top down and bottom on processes now aligned. We'll provide you with our divisional trajectory and will continue to 27 our saves of deep dives starting with CIB on the 25th of February. This concludes our presentation. We'll now be happy to take any questions.

[Operator Instructions] First question is from Delphine Lee, JPMorgan.

First of all, just a very quick clarification on Aval on what you said last -- so you're expecting the GOI growth operating income to be stable in 2017 versus 26% before improving in 28 -- and I'm just wondering because we're obviously seeing like having this year of the GOI. So just the swings are pretty large. If you could just clarify that? And how much recovery should we expect for 28 and 29. The second question is on just maybe thinking about your guidance of growing the revenues in commercial banking in the Eurozone by sort of more than 5% per annum. Do you see any kind of risk to that guidance considering the more challenging environment, especially in France, could that impact sort of in the rate environment as well? Could that impact volumes, deposit growth and the deposit mix?

So yes, Navin, thank you for your question. So in the -- so what you have seen is that if you look at Arval, the Gol has been impacted in the third quarter. And what you also saw that as of now, we have Atlan that is basically being added. And so that's why we basically say there is -- there has been an impact in the second quarter in the third quarter. That impact will be somewhat limited but at long coming in. But overall, indeed, you understood well that gross operating income will be stable 27% compared to 26%. But again, as I mentioned, within 27, there are other elements that will perform better. In particular, you've seen that our CIB is at a higher run rate. And I requalified our corporate center to be improved by at least EUR 200 million. So those are elements that basically compensate those 2 effects. And then on the corporate and personal banking in the Eurozone. So I remind you that our growth is stemming from several reasons. So the intrinsic growth that we guided for, let's say, a minimum of 5% growth year after year is basically stemming from the redeployment of the non-remunerated deposits. And that is -- that redeployment depends on the rates. And so the rates have a tendency to go up. So intrinsically, that would be even better. And so we didn't take into account in that guidance any further stepping up of the deposits. So that is why we feel comfortable given the environment where we are, the interest rates where they are, that we will deliver on this 5%, which could be even higher if there are further flows of deposits coming -- but in our guidance, we didn't count on that. So those would be the 2 answers, Delphine.

Next question is from Tarik El Mejjad, Bank of America.

Just on revenues, please. And 1 of the compensating factors you mentioned on Arval was the CIB. So you had amazing quarters for Q2 and Q3 in equities and prime services. And I want to understand how much of this we can extrapolate because it quits with your, I would say, end of project of bill rebuilding or building the equity business -- so how much is it just lifted by the market? And actually, how much is the higher run rate potentially you can deliver in this division. So you are suggesting that this -- I don't know Sara, can you maybe explain a bit what's the upside there from -- in 2017 because that comment was mainly 27 million, I believe. And the second question, still on CIB and Global Banking. There have been, again, clearly a step-up as well in the revenues per quarter and that also came with higher RWA growth. Is this actually fully compensated by the SRT program in launching of 10, 20 bps or 10, 15 bps per year. And how confident you see to see a good ROE on this growth of revenues that clearly needed to deliver on the targets.

So on CIB, it's a platform we've invested in since many, many years, growing platform. The platform is taking market share, I would say, worldwide. It's not just a European platform. We're posting excellent results in the U.S. throughout Asia and of course, throughout Europe. So global markets, equities, to some extent, volatile businesses, but those market shares are going to stay and we will continue to grow and to expand. We have the technology, the offering, the services. And now I would tend to say we have the right franchise. So this is the way we position that platform looking at -- looking at corporate banking within CIB. Last year, starting with the second quarter, third quarter because of a number of elements we entered quite a weaker environment. Now we have repositioned the platform. Again, it's a global platform. It's not only Europe, but it's also the U.S. Americas and Asia, we are doing extremely well. We have exactly the range of services, comprehensive worldwide to service those large caps. And yes, we are having in our trajectory, already positioned those risk weights that are necessary to sustain that growth. But remember, also, this is also an originate to deliver platform. So we believe that this is going to be a very positive support in the years to come, especially in Europe, where you will see this phenomenon accelerating as of today, it's been shy, but it's coming. And again, for this, not only for BNP Paribas globally, but for the platform for CIB, it's going to be 1 of the winner effect winning factor for the next years. So the platform is there. It's growing machine. It's not only posting very good results or job, but now it's also becoming something, I would say, larger Asia is full of potential and of course, the U.S. and Americas globally.

And Erik, it's really an illustration of our original to distribute. If you look back, basically, the risk-weighted assets at CIB, they haven't moved over the last years. And indeed, there is a bit of phasing within the year. So yes, there has been a pickup in the third quarter. And all of this will be offloaded in the fourth quarter. So you know how this goes. The typical -- the spikes in the securitization are year-end. And so we're really on track to offload all that growth.

Next question is from Giulia Miotto, Morgan Stanley.

So the first 1 is on Slide 7. So I understand there will be a decision once a year on excess capital distribution. Can we expect this for Q2, I would guess, or full year results. And then secondly, does this mean that probably you will stick to 60% payout and then everything will be in excess once a year? And can we assume that the excess would be mostly distributed in buybacks because that's the most accretive way. So sorry, a lot of small questions on capital. And then secondly, just a more top-down macro questions. We have seen the cost of risk miss this quarter. And if we look at the macro indicators for France, there are line deteriorating if we look at the bankruptcies, if we look at the unemployment. So how can investors -- can you help us make investors comfortable there is not a deterioration in asset quality come?

So on buybacks and the capital distribution. It's very simple. I cannot tell you precisely what's going to be the rule of the game for the next plan, but because this has to be decided by the Board in the coming weeks. But we increased regularly the regular payout since 15 years. So we used to be at 30%. The current plan we -- and clearly, the bank, the company growing faster, being more efficient, being more competitive and profitable will originate more free cash flow and free equity. So this is a good reason to increase the regular, I would say, pay out. So 1 possibility is to say we go from 60 to 70. And on top, we are going to return everything that is above 13%. So you can say we you return everything that is above 60% is basically just am -- probably the best way to say 70 because it gives additional confidence -- and the upgrade is going to be most probably through buybacks. This is quite obvious. So trajectory could be moving from 60 to 70 20% out of it buybacks. And on top of that excess equity that will be created over the plan. So you can do the computation. But if we had more than 13% return on tangible equity in '28 and 15% in 2030. Clearly, 70% is extra period kind of a minimum. There is a way for something that is above meaningfully above 70%. So this is the situation. It will start based on the results of 26 because at the end of the year will be above 13%. So there will be some excess equity in the system to be distributed. One day we will have some additional disposals. Sooner we'll close the plan. So this will come on it on top of it. So this is very much the way we are positioned. On the situation in Europe, and let's say, our 2 major franchise, Belgium and France and Europe commercial banks having really the best franchises. So we're very well positioned, and we are absolutely not, I would say, afraid by the new cycle. Cost of cash, cost of money is higher, of course. The franchise is extremely strong and solid, and we do not anticipate meaningful impact based on that situation. So this is the vision having for the years to come for those businesses through the commercial business living short term.

Next question is from Sharath Kumar, Deutsche Bank.

Coming back to R1. I estimate around $300 million of used car losses in the third quarter. Can you confirm this figure? And you also spoke about a few measures to address SDL value risk, but given fleet growth has been so much steep in recent years, what more can you say to make us feel comfortable -- and on Alan, can you quantify the restructuring costs and its timing. So those are my questions on R1. And secondly, on Personal Finance, -- this is 1 more segment where your current revenue run rate is slightly below the midterm guidance. So how should we think about the impact in the wake of clear funding costs and likely lower loan generation -- and also, are you confident here of maintaining cost of risk around 150 basis points, should there be further deterioration in the macro.

Could you just rephrase your last question?

Yes. So Personal Finance, current run rate is below your midterm guidance. So how should we think about the impact of higher funding costs, maybe likely lower loan origination -- and also, are you confident of maintaining cost of risk around 150 basis points, should there be further deterioration in the macro environment?

All right. So listen, on Aval. You can reduce that the -- we do not give guidance explicitly on the used car sales because as we mentioned before, there's also give a bit of a read on what the competitor can lead into it. But if you take our growth that you see, you can assume that this is the impact in the third quarter, which will be lower again in the fourth quarter, given at loan stepping up and rolling forward. On the fleet growth, how can we give you comfort that the pivot in 2028 will be there is basically that we have the overall pricing as of 2024 has been materially adapted. And so that's why we feel comfortable that the pivot will be visible in 2028. On the integration costs with respect to Atlan, they will be over that period, they will be EUR 107 million, EUR 170 million that is there to come. And when it comes to Personal Finance, Personal Finance, you do know that we have been restructuring it on different kind of products. And that also -- but that still means that whenever there is a pickup in the cost of financing and the rest, that we will further adapt the pricing and the origination and therefore. So that is why in our overall plan, we feel comfortable with the trajectory that we have given. But of course, as we have always done, we will adapt according to the situation.

Can you reconfirm the CPA for Alan?

170.

Next question is from Jacques-Henri Gaulard, Kepler Cheuvreux.

Yes. To the first one, I think you've announced this quarter that you were merging FLORA with CLM. Is it a sign that you've been a bit disappointed by this acquisition? And basically, what are you going to do with the brand? And the second question -- sorry, back to Arval, you've changed the CEO now coming from the most significant competitor of Aval in that market. And I wanted to know what was the mandate -- and pigging back on the former question, can we assume now that you're just not going to grow this market very much over the next 2 to 3 years?

I don't know exactly, but I have on gonadal must be 66 or 67 or 65%. So it's...