Executives: Lars Machenil - Chief Executive

Officer
Analysts: Jean François Neuez - Goldman Sachs Lorraine Quoirez - UBS Delphine Lee - JPMorgan Jacques Henri Gaulard - Kepler Cheuvreux Jean Pierre Lambert - KBW Jon Peace - Credit Suisse Pierre Chedeville - CMCIC Tarik El Mejjad - Bank of America Merrill Lynch Maxence Le Gouvello - Jefferies Bruce Hamilton - Morgan Stanley Omar Falla - Media Bank Stefan Stalmann - Autonomous Research Matthew Clark -

Mainfest
Operator: Good afternoon, ladies and gentlemen. And welcome to the presentation of BNP Paribas Second Quarter 2017 Results. For your information, this conference call is being recorded. Supporting slides are available on the BNP Paribas’ IR website, investor.bnpparibas.com. [Operator Instructions] I'd like now to hand the call over Mr.

Lars Machenil, Group Chief Executive Officer. Please go ahead, sir.

Lars Machenil: Thank you. Good morning, fine ladies and gentlemen and welcome to our second quarter 2017 results presentation. In our usual way, I'll take you through the first two chapters of our second quarter results presentation, and then I'll be please to take your questions.

So if we start with the key messages on Slide 3. You can see that in the second quarter BNP Paribas good business and income drive. Revenues in particularly of our operating divisions marked good growth increasing by 2.5% on the second quarter of last year. And this on the back of a strong commercial drive in all three dimension divisions, domestic markets, international financial services and CIB. Cost of our operating division decreased by 0.4% as they reaped the benefits of our efficiency measures.

As a [third element], cost of risk marked another significant reduction this quarter to stand at 36 basis points and this is of course in terms of outstanding loans. Overall, the Group generated €2.4 billion of net income in the second quarter; net of exceptional items it showed sharp increase of 17.2%. If we look at the ratios to start with a common equity Tier-1 ratio which stood at 11.7% at the end of June versus 11.6% at the end of March. And as you can see the Group delivered solid results with good business growth and further strengthened its common equity Tier-1 ratio. If we now go to Slide 5 and read where we see the exceptional items.

You can see that they were negative the exceptional items this quarter to the tune of €170 million post tax. On the other hand, year ago for the second quarter of 2016 had been quite positive as it has benefited in particularly from the sale of Visa shares. If you now swipe to Slide 6, you can see the very good performance of the operating divisions that I've mentioned and the 17.2% increase in net income excluding one offs. As I told you, there is a negative impact this quarter of the exceptional items for this last year. If you now zoom or slide or pinch whatever to Slide 7, you can see that is very good performance of the operating divisions was actually true for whole first half of the year.

And as we have delivered €4.3 billion of net profit in the first six months. This in turn means that we delivered 10.6% ROE on annual basis and return on tangible equity of 12.5%. Now if we continue and we focus on the revenues of the operating divisions. And if you can please flick to Slide 8, you can see the contribution of the three divisions to the 2.5% revenue growth with IFS and CIB divisions marking good progress. Domestic markets were slightly down due to the low rate environment despite the good business development I mentioned earlier.

If we continue to the back and advance to Slide 9, you'll see that cost of our operating divisions were actually down, thanks to the implementation of the cost saving measures. CIB's cost rate down benefiting from the launch of the CIB transformation plan as early as last year. ON IFS, cost evolution reflected increased level of activities while domestic markets were higher on the back of continued development of the specialized businesses. However, on domestic markets if we focus just on the three main retail networks in Belgium and Italy and France, the cost progressed by just 0.5% on average. If we stay on cost and if we swipe to Slide 10, you'll see that we are actively implementing our ambitious program of new customer experience digital transformation and savings across the group that entails total investments for €3 billion by 2020.

At Group level, we have already identified some 150 significant programs. In the first six months of the year, we have already booked €243 million transformation cost and generated €186 million of recurrent cost savings. The bulk of this cost savings were in CIB which launched its plan as you know at the beginning of last year. The launch of the plan has started in line with the defined timetable and the programs are being implemented gradually. Transformation costs are progressively ramping up and should gradually attain a cruising speed of around €250 million per quarter.

Now if we now shift to another type of cost, namely the cost of risk and I'd kindly ask you to turn through the three dedicated slide on the topic which start at Slide 11. You can see that cost of risk was again at the low level this quarter. On the whole the decline of cost of risk resulted from the continued decrease at BNL, combined with write-backs in some businesses. Looking at the different businesses just one at a time. If we start with corporate banking provisions where once again more than offset by write-backs this quarter.

Of course, I mean they were at the very low level and that is why the write-backs immediately tilted them into the debt territory. Looking at our domestic markets on Slide 12, cost of risk was low in front retail, very low in Belgium retail and continues to decrease at BNL in Italy. In the other retail businesses on Slide 13, personal finance saw low cost of risk this quarter benefiting from the low rate environment and a gradual shift towards products with a better risk profile. There were also some write-backs, Europe Med cost of risk was positively impacted by €21 million provision write-back while BancWest was still very low. If we now turn to our financial structure on Slide 14, you can see further improvement of our common equity Tier-1 ratio that I mentioned that stands at 11.7%.

This was basically due to the second quarter results and I remind you which is net of the 50% dividend payout that we foresee and so net off that it contributed 20 basis points which were partly offset by the increase of risk weighted assets excluding the foreign exchange and so this increase basically reduces it by 10 bp. And so overall the FOREX effect on the ratio was negligible, so 20 basis points from earnings, 10 basis points from risk weighted assets, so overall a step up of 10 basis points. If we look at the Basel 3 leverage ratio, it clocked in at 4.2% and our liquidity coverage ratio stood at 116%. So both well above the yardsticks so that's okay. And so yes and the final thing is the Group immediately available liquidity reserve total a whopping €344 billion at the end of June.

On this I leave you to cruise the last three slides of this introductory part. And would now kindly ask you to advance to the division's results and starting with domestic markets on Slide 19. If we look at domestic market, it showed good business drive for the second quarter with good loan growth in all of the networks and specialized businesses. Deposits also continue to increase in all countries. Private banking confirmed a good trend with asset under management increasing by 7.9%.

And net inflows reaching €1.5 billion in the second quarter. Hello bank! continued to develop well with good levels of new client's onboarding especially in France where new clients were up 18% compared to last year. Along this we've been impressing ahead with new client experiences and digital transformation. In fact, a couple of weeks ago we finalized the acquisition of Compte-Nickel which is a success story and already have over 630,000 accounts and in second quarter alone has notched up over 81,000 new accounts. The target is to accelerate client acquisitions and reach 2 million accounts by 2020.

Thanks to addition of Compte-Nickel, our setup in France includes comprehensive offer of different shade of solutions adapted to our client needs along side Hello bank!, the digital offer of our French retail and the branch network. In terms of internal development, we joined forces with Crédit Mutuel to merge our internally developed mobile payment solution, in May we released Lyf pay in France in partnership with leading retail groups such Carrefour, Auchan and Total and Lyf pay is a new high value added application which provides a universal mobile payment solution combining payment but also loyalty program coupons and discount offers. Looking at domestic market P&L, revenues were close to €4 billion in the second quarter, only slightly below last year. As I said, we saw good business drive in our domestic markets but we continue to be impacted by low interest rate. Commission income marked an increase in all of the networks to compliment that.

If we then look at the cost, they were moderately higher due to business development investments in our specialized businesses this quarter taking just the three large networks as I said earlier costs were up just 0.5% on average. Given a significant reduction in cost of risk especially on the back of continued improvement at BNL in Italy, pretax income stood at the high level topping €1 billion but just slightly below what we saw last year. Looking at each country and business, I can particularly mention that French retail shows good revenue resilience on the back of strong drive and business activity. BNL bc's revenues were down while showing good cost control and a continued decrease of its cost of risk. Belgium retail showed good business drive but was impacted by the low interest rate environment.

And finally the specialized businesses continue to deliver good sales and marketing. In conclusion, our domestic markets performance showed good business drive but of course still reflected the low interest environment. So having said that but still remaining on retail banking and services, if you now advance to Slide 25 on your device, you can see that our international financial services division showed good business activity. In particular personal finance continues its good drive. International retail banking also showed good business growth and insurance and wealth and asset management showed good growth of assets under management.

On the P&L, revenues were 3.2% higher and 4.2% even like on like and thanks to the rise in all of the businesses. Thanks to positive jaws effect and lower cost of risk, pretax income rose significantly to €1.4 billion, up 11.3% on the second quarter a year ago. Going into a bit more detail for each of the businesses of international financial services, you can advance to Slide 26, where you see personal finance which continues to show very good drive in the second quarter with outstanding loans increasing by 11.9%, thanks to high demand in the Eurozone and also the positive effect of new partnerships. Consistently we did 2020 development plan in Q2 personal finance expanded its footprint by buying Swedish consumer finance specialist SevenDay Finans which has some 70,000 clients and outstanding loans of around €580 million. In terms of results, revenues were up 4.4% on the back of volume growth combined with shift toward products with a better risk profile.

Revenues progressed particularly if you look at in Europe and Italy, Spain and Germany. Cost at the same time progressed on the back of this increased level of activity and given in particularly a decrease of the cost of risk which was at the low level, pretax income marked a significant improvement to €445 million marking a 22% increase on a year go. So in conclusion, personal finance delivered another strong quarter with a very dynamic business drive and a significant improvement of its income contribution. If we now continue in international retail banking and let's go to Slide 27, where we see Europe-Med. Business activity showed good growth with loan increasing in all regions and deposits also marking good progress.

Our digital bank confirmed their successful development with Cepteteb in Turkey reaching 420,000 clients and BGZ Optima in Poland had 205,000 clients. At constant scope exchange rate which is applicable in this kind of areas. Revenues progressed by 4%, thanked to the good volume growth that I just mentioned. Cost increased at a somewhat similar pace on the back of this good business development. Overall, given a lower cost of risk due to write-back this quarter, Europe-Med results increased by 12% in the second quarter of the year.

At historical scope and exchange rate the increase was 1.6% given the unfavorable exchange evolution as you know. Leaping now to the other side of the water, leaping to the US and going to Slide 28. BancWest confirmed its strong business drive. Loans were up 7%, driven by both individuals and corporate lending while deposits were up 11% compared to a year ago. We continue to grow the asset under management in private banking which progressed by nearly 16% on last year and clocked in at $12.6 billion.

At constant scope and exchange rate, revenues were up 7.9% on the back of the good volume growth and a higher interest rate. Commission marked an increase also versus last year. Cost progressed but at a lesser pace leading to a very positive jaws effect. On the whole BancWest pretax income increased by 11% on last year confirming a strong operating performance in the second quarter. If you could now kindly flick to Slide 29 on our savings and insurance business which show assets under management reached €1,033 billion at the end of June.

Assets under management were positively impacted by good asset inflows since the beginning of the year in all our businesses, as well as a positive performance impact. In fact, over the past 10 quarters, our assets under management have increased by €139 billion with nearly two thirds coming from net asset inflows. If you now look at the P&L starting with the insurance business, first on Slide 30, revenues benefited from a favorable market context as well as from good performance protection activity and savings activity in Asia. And were up 1.4% compared to the second quarter last year where let's not forget we had booked a high level of capital gains. Costs were up due to the continued development of the business and overall in the second insurance pretax income was only slightly below last year's at €376 million.

If we now move to the last part in that domain, moving to wealth and asset management. Revenues were up 2.3% with a rise in particular in our asset management. Cost markets a reduction leading to positive jaws as a result pretax income marked to near 25% increase to stand at €226 million in the second quarter. So globally, revenue growth in our insurance business despite a high comparison bases a year ago and a good performance in all businesses in our wealth and asset management. So this basically completes our retail banking and services business for the second quarter.

So let's go to the last part, if you could kindly cast your eyes on Slide 31 on corporate and institutional banking which posted again good results this quarter. Indeed, revenues stood at €3.2 billion, marking a 4.6% increase despite a high comparison base a year ago. Both corporate banking and security services marked good revenue growth while global markets showed good resistance. As a reminder, our CIB is well diversified focusing on institutional and corporate clients is well capitalized and is fully integrated with all businesses of the bank. And therefore we have this continuous uptick in the revenue line.

Talking about continuous, let's look at cost reduction. So our operating expenses showed a significant reduction of 6% year-on-year on the back of the cost efficiency measures that we've been implanting in the CIB division since 2016. The second quarter marked the fourth consecutive quarter of very positive jaws effect for the CIB activity. As a result, gross operating income led by 28.4% and given another quarter of net write-back in already a low cost of risk environment pretax income rose by 48.7% to stand at €1.35 million. So if we now turn to the next two slides i.e.

32 and 33, let's take a closer look at the three businesses with CIB, if we start with global markets, revenues were 2.3% down due lower business activity in fixed income. That was however almost fully offset by the strong performance of our equity and prime services. Fixed income was actually impacted by the lower level of activity at industry level, as a results revenues increased by 15.9% compared to favorable second quarter last year. In this lackluster context, we confirmed our top ranking on all bond issues in euros and number nine positions for international bond issues. On the other hand, equity revenues showed strong growth on the back of solid performance of equity derivative and the good development of prime service.

So if we this return to security services, revenues progressed by 7.9% on the back of growing outstanding and higher transaction level. The business line also benefited from the positive impact of new mandate. Finally, third part corporate banking; revenues were significantly higher, up 13.5% on last year with growth in the EMEA and Asia-Pacific region while Americas was essentially stable. Transaction banking evolved well with sound growth both in cash management and trade finance. The second quarter saw good level of capital gains which were realized as part of the current business activity so nothing is particular to mention.

So in a nutshell, a very good overall performance of our corporate and institutional banking with continued improvement of its operating efficiency and strong income growth. So this is basically concludes my introductory remarks of our second quarter results as a takeaway I'd like you to reiterate that BNP Paribas showed good business drive this quarter. Income of the operating division was slightly higher. Our CET1 ratio increased to 11.7% and all this testify to a good start of the 2020 plan. So, ladies and gentlemen, once again good morning and I thank you much for this attention and I hand the floor back to you.

Operator: [Operator Instructions] The first question is from Jean François Neuez of Goldman Sachs.
Jean François Neuez : Hi, good morning. Jean François Neuez from Goldman Sachs. I'd like to ask you two questions please. The first one is on the external of growth and the bolt-on that you have done year-to-date.

There has been quite a few -- you mentioned a few in your presentation, each of them individually has really been life changing so to speak. But I just wanted to know whether you could give us the total amount of capital spent on the sum of all you have done year to date as well as what is your expectation for the contribution in addition to your business plan probably at the end of the year, at the end of the period of the business plan if you can share that with us. The second question I had is on the jaws. At group level I noticed that clean for one off they started to be positive again. They have been drive by CIB, you've made in the remark that the plan was launched earlier hence the results.

At which stage can we expect to start to see the resumption of positive jaws into retail activities overall in your opinion. I know you've been kind enough to give us guidance for French retail revenues again. So I just wanted whether you could -- wanted to know whether you could expand on that as well.

Lars Machenil: So Jean thank you for your two questions. I'll start with the external growth.

So as you mentioned indeed what we've been doing is so called bolt-on acquisitions. So not of a material size and so it's basically means an overall reflection as you know when you look at our earnings of a given year, which represents basically 100 basis points of common equity Tier-1. Out of that we basically said that half would be allocated into dividend. And then there would be some 30-35 that we would need to cover the growth in our RWA which correspond to the growth of the business that we accompany. So we basically have something like the equivalent of 15 basis points available to do acquisitions.

And if you look a bit at what we've announced so far and what is to come, what we still have to consolidate, you can see that this is the area of size that you have to look at. So that is what it is. So it's basically as I said the bolt-on. It's within the scale of the thing that we do. So there is nothing particular to mention.

When it comes to your jaws, so the thing as you know the plan that we have launched this year and which has indeed started a year earlier in CIB, is a tad different from the previous plan. Our previous plan was a cost reduction plan. This one is really a plan where we aim to adopt the bank to be in line with the new customer experiences, while we also try to be in line with the businesses that we can do. And of course as a consequence of that we will do a cost reduction. And as you saw that the activity that is done it was basically on CIB.

Now, if you look at our overall planning, you had seen that when we announced ROE improvement for each of our businesses, we showed that it basically to drive off the plan by 2020 depends on the focus area. And as you remember, the ROE back a year ago was most depressed compared to the average in CIB. So, of course, the focus is that more in the plan on cost in CIB and is more on developing still while containing cost on the retail side. So that is a bit the way I'd provide color on this evolution.

Operator: The next question is from Lorraine Quoirez of UBS.

Please go ahead. Lorraine Quoirez : Hi, Lars. Good morning. Just two questions for me. The first thing is the write-backs were significant again this quarter.

So I was just wondering whether you expect cost of risk to remain that low in the next few quarters. And the second thing is as you mentioned there has been a certain amount of capital gain in the corporate banking business. And I'd like to now how much high this capital gains were compared to your normal run rate? Thank you.

Lars Machenil: All right, thank you for your questions. And so first when we look at the cost of risk and it is true that there are some elements that we drive to basically have a positive evolution of the cost of risk.

And particularly we think of BNL where we have repositioning on the better counter parties. And as you can see the cost of risk tapers off at BNL. And then the second thing is within personal finance. We are also focusing on a better counter party product which also has led to some improvement there. Nevertheless as you mentioned we have some write-backs in some areas like Europe-Mediterranean and like in CIB which have basically flattered somewhat our cost of risk.

I remind you that the guidance that we have given is that overall we expect in a normal period to have a cost of risk which is somewhere between 40 and 50 basis points overall standing. So that is a bit what I would suggest that you keep in mind and going forward. And then when it comes to your question on capital gains. So I think you refer to the capital gains that we have in corporate banking. Now the thing is I want to clarify what these things are.

This is basically part of run of the mill. So it's not something that boosts overall performance. It's something which is part of the yearly performance that we have in that activity and what does it stand for. It basically is from the normal run of the mill. At some point in time they can get into a structure which includes an equity kicker.

And then at some point in time this equity kicker kicks in and basically gives a gain. Another possibility is that if at some point in time a loan gets our and the company get restructured and that restructuring lead us to have an equity stake in that company which then over time can also be sold and lead to capital gains. So what we just saying is that, so it's part of the normal run of the business and that's it. There is nothing more to see. It's not really driving particular results.

It's part of what the normal business does.

Operator: Thank you. The next question is from Delphine Lee of JPMorgan. Please go ahead.

Delphine Lee: Yes, good morning, Lars.

And thanks for taking my questions. Just two also from my side. Just wanted to come back to corporate banking. I mean just wanted to look for a bit small color in terms of maybe the market shares gain that you are having. And how much growth are we seeing in Asia? If you can give us a little bit more color that would be helpful.

Secondly, on French retail, I am just wondering why -- well, your revised literature your guidance that you seem still relatively cautious around 2018 and where we can see the top line really picking up and if you could also give a little bit of color here that would be helpful. Thanks a lot.

Lars Machenil: Sure, Delphine. Thank you. Now when it comes to corporate banking, let's not forget what we do in corporate banking.

We are very focused on helping our clients for example in areas where what we bring in cash management, trade finance, it can make a difference. And so for example in Europe, we are focusing a big part on the Northern part Scandinavia but also Germany that's what we are doing. And so we are also accompanying European clients into Asia and US and basically at the same time helping local clients going back with trade into Europe. That basically what we do in corporate banking. When it comes to French guidance, so yes in France you've seen we are -- we've seen a volume picking up as you've seen in our numbers.

So we are -- this is a bit of trend, a positive trend that we have now seen for a couple of quarters. And this is something which improves a bit the outlook that we initiative gave, because yes the interest rates remains very low. But next to the volume growth, we are also working at developing and providing fee generating products that are finding pickup and as you can see in the line fees and permissions. So that is a bit what we see and so that is basically makes us a little bit a more optimistic and so when we guided during the announcement of the plan that for this year the top line in France would be more or less minus 3%. I think we can now it's more going to be towards minus 1%.

So we see a positive impact and particularly of the pickup and volumes and in the demand for fees. If this continues this is that. Then now when will this really shifts, that we'll have to see how things evolve and that would be somewhere in 2018 or 2019. We'll have to see that.

Operator: The next question is from Jacques-Henri Gaulard of Kepler Cheuvreux.

Your line is now open. Jacques

Henri Gaulard: Yes. Good morning, Lars. Couple of questions on my side. It's the second quarter that you are basically beating your 2020 target in terms of ROE and ROTE.

Is any there need to be time to revise them up soon particularly in the context of Basel 4, could you give us an update where we are here? It's headache for everybody. Question one. Question two, very interested by the acquisition of Compte-Nickel. You were not maybe the natural acquirer of this. I was wondering if you experience some cannibalization of your existing client base.

We are also client of Compte-Nickel, give us a percentage or you find there is no cannibalization at all. And maybe try to elaborate for us how your effective distribution network organizes itself now between the networks Compte-Nickel, the regular online banking. Lastly a third one, I was wondering when you would give us an update on IFS9 maybe in detail if it's next quarter or towards the end of the year. Thank you.

Lars Machenil: Jacques, many questions.

So no worries. And so first if I go to the ROE target, as you know, so indeed our underlying result have proven to be very strong in the second quarter, which also reflects in the improvement of the ROE. On the ROE let's not forget as we are regulated by the way we can calculate it and when the way we can publish it, ROE is basically annualized because if you just take the return on one quarter, your ROE doesn't mean anything. So that means it has been to annualize. If you look at the overall results in the first semester, they are typically stronger than in the second semester because there is a typical pickup which is stronger at the beginning of the year.

So this means that this annualized ROE is a bit inflated versus where it is. So typically when you look at the ROE that we published quarter after quarter, you basically see its starting and then tapering off towards the more normal level. The second thing that you know we are still stepping up our common equity Tier-1 so we are at 11.7%. We are still stepping up to 12%. So that is a bit where we are ending to.

So then you had question on Basel. And yes so let's not forget that on Basel IV Europe has said many times they wouldn't wanted to basically materially impact the capital requirement of bank, which is logical. Because if it would that would basically hamper the banks and supporting the European economy which would be perpendicular to what European Central Bank tries to do. Moreover, there has been discussion in beginning of the year which hasn't led to a conclusion. So this will probably continue in the second half.

Let's not forget that in the second half of the year the US will again be one of the tables. And so US are also very dovish about eventual impacts of Basel IV. So we'll have to leave it like that today and we'll have to see how that evolves in this frame. When it comes to Compte-Nickel, let's not forget for us Compte-Nickel basically compliments the way we interface with clients. So we have the branch network, we have our digitalization, we have Hello bank! And then we have Compte-Nickel.

So Compte-Nickel for us is basically a separate stream. So it's a separate stream focusing on different aspect and that is the way we'll keep it. When it comes to -- your last question on IFS9. And so there are still some elements in IFS9 which haven't been clarified by the supervisor, by the regulation. So you still have to wait for that in order to come up with further details.

Overall, our best calculation is that the impact, when it comes to common equity Tier-1 will be relatively limited. It will be 10 basis points which are if you look at some of the EB statistics is on the low side. And that is probably because BNP Paribas already had use of collective provisioning on what is now being called the stage two provisions. So that is basically where I would have to leave it to.

Operator: The next question is from Jean-Pierre Lambert of KBW.

Jean

Pierre Lambert: Yes, good morning. I'd like to come back to some topics which were discussed earlier. The cost base in global markets was down 12.5% year-on-year. How should we look at this €1 billion cost base this quarter? Whether any one off such as less investment or adjustments to bonus pool for ED if it is fund, so that's the first question. Secondly on reversal of provision in CIB.

Looking at BNP's history 2005 and 2006, the bank enjoyed two years of reversal of provisions. Is it the scenario which is possible or you think the reversals we are seeing now are more short lived? And thirdly, you completed €9 billion issuance of non preferred in your debt out of the €30 billion program. Do you have any fine tuning on your €400 million negative revenue guidance for 2020 based on what you see. Thank you.

Lars Machenil: Hi, Jean Pierre.

Thank you for your questions. And when it comes to the cost of base that you see in global markets. It is really yes relatively the driver of the overall savings. So it's not that it is exceptionally loaded. It is what they are doing.

For example, in the document you can see the contribution of each of our divisions on the overall savings and you can basically see that global market represents 60% of the savings. So that of CIB, so you can clearly see that the efforts that are being done in global markets are material and that's also logical. If you look at our global market, it's where we had FICC on side and equities on the other side. We brought them together into global markets. So you can clearly feel on systems on back of it, or middle of it that you can see that we have savings opportunity and that is basically what you see and you can see the relative part of that.

So that's add. When it comes to your question on cost of risk drive-back. So, yes, it is true that write-back that we have are based on the provision that we took a couple of years ago. And that are in areas which were of concern and which are turning out to be better. How much more will that evolve, how much more meaning will the companies improve, will the companies be having sales in their activities, that is something honestly, Jean Pierre that I cannot tell you.

But it cannot be excluded that there would be some further positive effects coming on to that. And your third question was on the revenue potential impact of all issuances that we are having. The only thing that we were saying if you look at our issuance today, we are just --yes, we are doing it well so. For example, we gave out the numbers that we want to do so. We wanted to do €10 billion in FICC, and yes that is what we want to do in one year.

And we are at €9 billion. So, yes, I mean this thing wasn't existing before. It's going now as well but we confirm our overall objective to have €10 billion on average per year, which means that the cost we guided is also the same as what we said. So there is no change on that front.

Operator: The next question is from Jon Peace from Credit Suisse.

Jon Peace: Yes, thank you. Hi, Lars. So two questions please. The first one was just on the revenue trend at the CIB and the market share gains that you've been seeing. And I just wondered if could elaborate a little bit more on what's driving that and how much is it your own initiative, how much is a weakness among competitors and how much further might you have to go on some of these trends.

And the second question was on your insurance business. You talked about good underlying inflows some especially in unit linked. And I just wondered how the mix might be changing there. The back book versus the front book as it were in terms of unit linked versus traditional life. And whether you see any positive or negative calculus as a result of the recent elections and some of the new policies that might be out there for taxation et cetera.

Thank you .

Lars Machenil: Jon, when it comes to indeed the market share gains, so as a reminder what we've done as I said in CIB, we adopted very quickly when the new regulation came. And we basically have diversified approach to what we do but also integrate with all the aspects of BNP Paribas. And so if you look at I mean if end of numbers we have basically shared in our Investor Day, that you clearly see that at market share we grab it in security services, we grab it in global markets and we grab it in corporate banking. And it's because -- to simply say we not only just grabbing new clients, the idea is also if we serve the client we basically aim to serving with many other products.

So those are the two things that we aimed for and being a diversified approach well capitalized bank, this is the thing that we can offer and as we basically grow that from. So that is on the market share gain. When it comes to insurance, yes, as we said we of course focusing going forward on things like unit-linked and on a property and causality kind of business. This is what we are doing and we basically orienting this in many different areas, we are doing this in France; we are doing this also in Italy for example and other things. That is what we'll continue to do.

Jon Peace: Thanks. Did you anticipate particularly any changes with the results of the elections? So do you still anticipate strong inflows?

Lars Machenil: Jon, I think it's a little bit too early to have any views on this. I mean as I said we are very supportive of a continuation of the positive momentum that we have seen for example in France. There has been going on for a couple of quarters. And that's it and so we basically also see this in a good confidence index that we see.

So we'll observe that going forward.

Operator: The next question is from Pierre Chedeville of CM-CIC. Please go ahead.

Pierre Chedeville: Yes. Good morning, Lars and everybody.

Just two quick questions. First question is related to comment on your corporate banking activity. When you mentioned capital gains, I must admit that I am probably ignorant but I don't see what you mean by capital gains in this kind of activity. If you can enlighten me it would be nice. And also regarding equity and prime services, we all have noticed your very exceptional performance this quarter.

But when you compare it to peer we know that all your peers mentioned very low volatility that led to very low volume. So I guess when you talk about performance, do you talk about volumes or do you talk about your trading performance? Thank you.

Lars Machenil: Yes, thank you. When it comes as I said the corporate banking the elements of capital gain that we mentioned. As I said are part of the run of the mill and maybe to give further color to it.

If we talk about for example capital gain, it can come from an equity kicker which is typical structure when we do acquisition finance, were in order of the overall structure with what you pay interest rate. There is also the option to basically get an equity kickback in the company at some point in time. And so that is done at some point in time that can be realized and it generates a capital gain. And the other example that I said if a company goes a bit into dire strait it can get restructured out of the restructuring we can replace part of the loan by an equity stake which then if it turns out to be well leads to a capital gain. So this is something that as I said it's part of the mill of what we do.

It's not that we take investments and that we basically see how it goes. It's part of what we do. Yes, so that's on that part. When it comes to your question on equity and prime services, yes, when we talk about having those elements we talk about the volumes so the volumes are good. And yes I mean it is as always I mean some banks have less in volumes and then some other banks have more in volume.

So we note that there are many banks that don't have their order banks like us that have positive impact on the volumes in equity. Pierre that would be my answer.

Operator: The next question is from Tarik El Mejjad of Bank of America Merrill Lynch.
Tarik

El Mejjad: Hi, good morning. Just couple of questions pleases.

First on cost. If I understand well, the answer you gave to a lot of question on that. So I understand well if thing that the retail cost will take longer to materialize than what we've seen for CIB. Is that right to understand this way? And on cost like on corporate center, so second half of this year we should expect normally if you flow guidance around €500 million, the transformation cost, that's correct, and my last question was on French retail revenues. I mean you just managed to keep NII flattish, for your revenue flattish with volumes of 8%.

So what would that been your NNI if you had the more normalized volume that we should expect that seeing next quarter I guess. Thank you.

Lars Machenil: Maybe first on the retail. Let's clarify. So what we've guided that in the retail of course with the efforts that we do we'll also will have reduction of cost which we've guided to be minus 2% for the domestic market by 2020.

Or put it in other way which will improve our cost income by 3 points. That's it. So that's basically what I said. As you remember, the cost efforts and the growth effort are diversified between our three businesses. And that's it.

So these are the numbers that we have. You had a question I am not sure I fully understood on the corporate center. Could you repeat your question?
Tarik El Mejjad : Yes. The transformation costs that you booked only €330 million as off first half and you were guiding for €250 per quarter. So should we expect €500 in second half or less?

Lars Machenil: Listen, this is where I let you decide.

So as you know we are ramping up this cost. So we are seeing, we are making sure that people are identifying the right product that we support them. And you've seen that we've already stepped on first quarter into the second quarter. As I said we've guided towards an overall very much €250 million, exactly when we will be there I'll let you -- I'll report that when we are there.
Tarik El Mejjad : Okay.

And on French revenues?

Lars Machenil: No, on French revenues I let you do the math. I mean if we look at the volumes how they grow, you've seen that. You see that there is pressure on the interest income. There is however combination of what we do in feed information and all that is a whole. So I mean just tapering out one or the other it doesn't really make a lot of sense.

Tarik El Mejjad : My question was just trying to have your thinking here because you agree that's 8% volume growth something that's difficult to maintain in very long spell of time so I was just trying to have your thinking there but fine.
Lars Machenil : No, I mean, sorry maybe to clarify further is a thing when --and that what we said earlier. I mean the 7% and 8% that you have seen in the first quarter and the second quarter are somewhat flattered by the low base that we had a year ago. As I said the pickup in France and the optimism that we see is now going since a couple of quarters. So a more natural kind of rhythm would be 5% or so which is also for example what we see in Belgium.

So that is the kind of guidance I would give.

Operator: The next question is from Maxence Le Gouvello of Jefferies. Please go ahead. Maxence

Le Gouvello: Yes, good morning, Lars. I have a few questions.

The first one is a request, can we have in the future the disclosure of the assets under management for the product banking activities in Italy and Belgium retail will be quite useful. First question is regarding the saving into the CIB. You made €170 million in this quarter. Can you give us more color of what do we include into? Is it IT headcount outsourcing that would be quite useful. So one question just regarding the cost in insurance, they are up by 7%.

More explanation, is it life, non-life, and where do you want to invest? And the third one is regarding your personal risk. You have been fined by the [Bond of House], June 2nd regarding some lack of reporting in 2015. What was interesting in the press release of the [Bond of House] he said that you met the significant improvement and investment over that time? I'd be interested of how much have you invest in French retail over that period of time to bring back to deliver that was requested by [Bond of House]. Thank you.

Lars Machenil: Maxence, thank you for questions.

And your first remark is noted. And when it comes to the CIB one, the CIB is basically it's a diversified impact. So as I said we've been moving global markets sort of activities of free gain equities to better so we have some savings on the IT front. We've also being starting up our local centralization for example as I said in Montreal in Lisbon and the likes. So there is some of the staffing cost that is basically also kicking in.

So that is a combination. It's relatively balanced between those two. And when it comes to insurance as I said, what we do is we aim to focus growth and to have complimentary growth. So there is of course lot of focus that is going on in unit-linked but there is also growth going on in the non-life area. And for example, and this is also what we do in many of the areas where we are.

So for example in Italy we start up recently our activity in non-life that we are doing. And we are doing that in several different areas. So that's that. And with respect to [Bond of House], yes we have efforts done but we don't specify exactly the amount of cost that we've invested. Its part of in 2014, we've been stepping up a lot of efforts in compliance, in control and to guarantee as we've done with respect to all.

And that's basically so if you want to look at it in total, it's of course a stepping up for example inspection we now have more than 3,600 people so it's 126% versus like four years ago. So that is the kind of thing that we've done. So it's not that for this one particular situation we've been adding things. It's really since 2014 we've been stepping up tremendously in staffing what I just said but also in training and in the likes in what we are doing.
Maxence

Le Gouvello: What I am looking to slide 16 of the presentation every quarter, those figures are permanently going up, so when can we expect to it stabilized in terms of number of staffs?

Lars Machenil: Yes.

No, I think we are now in a phase where we are basically reaching where it is. Because once you are there afterward you can also start industrializing. Take the example of the Sika, what we've done in the US. So in the beginning when you do things, you often do it also in a manual way and then you can industrialize over time. So it is true that since 2014 we've been stepping up the activities, doing this activity.

It's also takes some time to get it fully crystallized. So that is why you indeed still see a kind of pickup but we should be normally by year end something like that we should be where we want to be.

Operator: The next question is from Bruce Hamilton from Morgan Stanley. Please go ahead.

Bruce Hamilton: Hi, good morning, Lars.

And couple of questions for me. Just returning to the strong forms in equity. I guess beyond in terms of strength might be that structure products have been good even though flows being a bit weak. So I wanted to check whether that make sense and just if you can give a sense how much of your equity derivative is coming from flow versus structure it would be helpful. And then secondly on the prime services, how are you differentiating your offering? I mean what you think is driving the market share improvement there and versus peers.

And then the secondary just on PST2, in terms of where you are in terms of planning, developing ATIs and more broadly as you look at PST2, do you see more as an opportunity or a threat to your business, and if so why?

Lars Machenil: Listen, yes, on equities, so it is true that structured has been performing well. But as I said so as flows so yes we are active in both areas. And so both areas is basically had the pickup. And when it comes to your question on prime services, I suppose you remember that already some years ago we basically did some acquisitions in that area which is what we are continuing to build on. And on with respect to the PST2, as you know, there will be of course some adoptions coming next year.

And but I think with the diversified approach that we have we are well positioned to basically adapt to the customer, the kind of products and that is needed and that are compliant.

Operator: The next question is from [Omar Falla] of Media Bank. Please go ahead.

Omar Falla: Hi, there. Sorry to come back to asset quality but even if we adjust for the write-back, you still miles from the 40 to 50 basis points cost of risk now.

On top of that NPLs were down I mean I think close to €2 billion in the quarter. And as you Jean Pierre mentioned in the past you had multi year period extremely low loan losses, so why shouldn't that be the case going forward. Second question would just be on asset management and the flows quite weak €1 billion I think they were. €15 billion to quarter before, is that just money market treasury outflows disruption related to the reorganization, what's going on there? And then just lastly what was the underlying growth in risk weighted assets in the quarter excluding FX? Sorry if I miss that somewhere.

Lars Machenil: Okay.

Thank you. When you say, when you correct on cost of risk, you mean miles away you mean miles below I guess that's what you mean, which is true. So the cost of risk for the moment is indeed, sorry intrinsic guidance it's like 50 basis points I say 40 to 50 as a guidance but they are for the moment very low. If you look at in these areas like for example Belgium and other areas they are indeed low. However, I mean if you look at for our planning on the medium long term, I still provide the overall guidance of 40 to 50 basis points because as we will keep on picking up growth, we'll have to provision for that growth as well.

So I understand that for the moment it is particularly low that's what we said. And therefore our overall guidance however remains 40 to 50 as I said. When it comes your asset management flows, yes, so basically the difference this quarter is indeed related to the money market outflows. And when it comes to the RWUE evolution, so the way what we said is that if you look at RWUE they are basically flat and they are flat because indeed the FOREX evolutions had brought down the intrinsic growth. So the equivalent if you want on our capital basis is basically a 10 basis points.

So that is let say €5 billion to €6 billion in RWUE growth intrinsically that you see, which is the normal rate that you would expect given the volume growth not the risk weighted.

Operator: The next question is from Stefan Stalmann of Autonomous Research. Please go ahead.

Stefan Stalmann: Good morning, Lars. Two questions please.

The first one Belgium, seems that corporate tax rates are coming down and that could mean that you will have impairment, I reckon maybe €400 million or so. If it comes, could you give any guidance on that and could you also maybe mention whether that would have any impact on you think about dividends? Second question regarding the FX settlement that you had lately with the Fed. And a bit earlier also with the New York the Department of Financial Services, part of the settlement was a Fed it's actually that Fed imposes quite a lot of requirements on your controlling and compliance and risk management systems and if I read it correctly imposes that on your global FICC business. Do I understand this correctly and if so, does it constitute a driver of cost going forward or have you actually done the lot of these things anyhow already. Thank you very much.

Lars Machenil: Stefan, thank you for your question. So, yes, when it comes to Belgium and reduction of the corporate tax rate, now first of all this is a good thing right. So this is basically means that for our bottom line that's it. Then secondly, we were indeed having to look closer at the stock off provision but also the stock off provisions not activated. So I think overall there is more positive thing than a negative thing.

So overall I think the impact on the past should be relatively manageable. And going forward it will basically be beneficial. So there would be Belgium and when it comes to the FX settlement, yes, so the FX settlement will basically covers the period of 2013. As you know, as of 2014 we have stepped up as we said earlier, our activities both in compliance and in inspection but also in the systems. So normally we assume that within those activities we should be able to ensure that we are aligned on all those reporting that are required.

Operator: The last question this morning is from Matthew Clark of Mainfest.

Matthew Clark: Good morning. Two questions for me please. Firstly, on the restructuring charges. It sounds if you are going to under shoot the €1 billion full year 2017 guidance.

And should we expect catch up by next year so you get back on track to the €3 billion of transformation cost. Just checking you are not suggesting you are going to under shoots overall in that €3 billion. And then second question is on the personal finance division. Could you quantify the change in the percentage of auto loans there? I mean it looks like you are still seeing a mix shift because the margins coming down. So could you say what the proportion of auto loan is now versus what they were a year ago? And then maybe where you think that will end up? Thank you very much.

Lars Machenil: On the restructuring, so yes and no we still confirm that the overall restructuring cost we aim for €3 billion. Now the thing is when I said we are looking at exactly how the customer experiences are changing, how we can digitalize so we take the time to ramp those up to make sure we do the right thing. So that is what it is. So that means that yes if we have -- we are a bit for the moment it defers two quarters below my run rate that I guided to 250. So yes we might be bit below to overall guidance for this year.

Where we will basically step up or catch up already in 2018, I am not that sure, it's probably in 2019 where it is tapering off would be faster, maybe the tapering off will be a bit slow. So we confirm basically the €3 billion that is the effort that we want to do and the savings that we want to get out of it. Maybe on the saving switch I remind you because we've been discussing it. So out of this €3 billion, we expect €2.7 billion. And I remind you that 36% of that is CIB, 40% of that is domestic markets, 24% is IFS.

And so that is basically this. On the restructuring, when it comes to personal finance, when you look at the auto loan and I am trying to understand what your concern is because for us this is exactly the elements that we try to aim on because we limit the risk. I know that some of you have some concerns of what is happening in the US. But US is a totally different business that what we are having. So what we are doing in auto lending is much more towards corporations instead of directly to individuals.

We also provide a lot of services around it. And so we basically don't and what we do is not the sub prime kind of cars. So we do not consider this as being a particular risk.

Matthew Clark: Just a follow up. I wasn't thinking of it is risk, it's more than that looks like material driver of the margin that if you look at revenue in the personal finance division to loan outstanding that's been sadly declining and I am just trying to understand the dynamics there because [Multiple Speakers]

Lars Machenil: So I just I thought your question was from a risk concern which is why I clarified.

For the rest, it remains something which is important. It is around 20% of the activity. And it is leading to the growth drivers as you've seen.

Operator: Thank you. There are no further questions this morning.

Lars Machenil: So thank you all very much for the attention. I wishing you a very good holiday and let me remind you once more that we had a very good business drive this quarter. Income of all divisions was sharply higher. Common Equity Tier-1 at 11.7%. And it all testifies to good start of the plan.

Thank you very much. See you again soon. Bye, bye.

Operator: Ladies and gentlemen, this concludes the call of BNP Paribas second quarter 2017 results. Thank you for participating.

You may now disconnect.