Operator: Ladies and gentlemen, good afternoon, and welcome to the presentation of BNP Paribas Second Quarter 2022 Results. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. [Operator Instructions] I would like now to hand over the call to Lars Machenil, group Chief Financial Officer. Sir, please go ahead.

Lars Machenil: Thank you. Good afternoon from sunny Paris, fine ladies and gentlemen. I'll trust you're doing well, and welcome to BNP Paribas second quarter results presentation. As you can see, BNP Paribas remains on a solid trajectory and keeps on with the robust start of the year. The group has confirmed its ability to deliver revenue growth, positive jaws, and benefits from a prudent risk management.

Ladies and gentlemen, in a nutshell, the second quarter results will remind you all that BNP Paribas is an all-weather bank outperforming the underlying economy, both in cases of economic head or tailwinds. So let's put on our shoes and let's walk through the results. In the usual way, I'll take you through the first 2 chapters of the results presentation before handing it over to you for Q&A. So if we start with Slide 3, where we see that on the back of a diversified and integrated model, the group delivered a very strong second quarter result, expanding its activities to provide continued support to our clients and the global economy. These performances illustrate our unique positioning in Europe, and this is based on the strength of our leading platforms as well as our capacity to generate growth at a greater pace than the underlying economy.

If we look at the elements of the P&L, first to revenues. They increased by 8.5% on the same quarter last year, stemming from all divisions with a strong increase by CIB, very solid growth by CPBS and the rise in Investment & Protection Services. Supporting the growth in activity, costs have increased by 7.6% and by 4.9% on a like-for-like basis compared to a year ago. And as I said, so that difference, 35% of the increase was due to the scope and exchange rates effects. So what you can see is that the group continues to benefit not only from a strong potential for growth but also from a strong operational performance, delivering positive jaws of 0.9 points.

As a result, gross operating income increased by 9.9% compared to the second quarter a year ago. Now from that gross operating income, you have to look at the cost of risk. It stood at 33 basis points over loans outstanding. Again, a testimony to our sound, long-term and proactive risk management. So this low level of 33 basis points to -- compared to the 40, let's say, over the cycle is embedding an ex-ante provision on our performing portfolio and is in relation to the current macroeconomic and geopolitical environment that was partially offset by releases of provisions from the public health crisis.

So this, as you know -- I'll come back to that but our prudent approach to provisioning. And so hence, if you take all that, you see a very steep rise in group's net income, so clocking in at €3.2 billion, up 9% compared to a year ago and even if you exclude additional items, up 18%. Now if we turn to the group CET1 ratio, it clocked in at 12.2% in the second quarter, and the ROTE stood at 12.4% as an illustration of our reinforced profitability. So a bank in the pink of health are, in a nutshell, a strong performance again this quarter, supporting our disciplined growth trajectory. So if -- with this, I can ask you to accompany me to Slide number 4.

You can see that BNP Paribas' solid model has delivered since the second quarter 2019 a sustained growth of net income averaging 8.8% with a well-balanced contribution from our 3 divisions and this, again, thanks to our diversified but integrated model. So with stronger market positions and continuous reinforcement of our platforms, our ROTE at 12.4% illustrates the strength of this model. And as shown, we benefit not only from a model generating a ROTE above our cost of capital, but also from a model which is more resilient and performing above the average of the European peers year after year. With this, I can ask you to swipe to Slide number 5. You can see that our model is providing a solid base for growth with 8% increase in loan outstanding and 7% in deposits.

And this, thanks to our diversification, favorable positioning and a very comprehensive product offering here again with leading positions. As already evidenced by the strong business momentum of the first semester, our potential for growth is driven by additional recurring income we have embarked with our strategic developments finalized in 2021 or at the beginning of '22. I remind you that it should provide around €900 million revenues as soon as 2022 compared to '21. You already saw a part of this impact in the first semester. They are here to stay and to be amplified with the reinvestments to come from the capital release by the sale of Bank of the West.

Last but not least, let me firmly reiterate that this growth is and will continue to be disciplined with the objective of delivering positive jaws each year for every division. If -- with this you can advance to Slide 6. Our long-term prudent and proactive risk management policy is a real and proven competitive advantage. Our risk approach is prudent, as illustrated by our cost of risk on gross operating income, which is one of the lowest among European peers. In addition, we have continuously improved our risk profile since the last 10 years, be it by adapting our product mix, for example, personal finance or exiting gradually certain geographies, businesses, sectors.

Last but not least, we have a prudent approach in terms of provisioning. So if I come back to the cost of risk, as I referred to just a couple of slides before, and if we refer to the second quarter this year, we have provisioned €511 million ex-ante. So that is increasing Stage 1 and Stage 2 provision. And this in relation to the indirect effects of the invasion of Ukraine and higher inflation and interest rates. At the same time, we have released €187 million in provision related to the public health crisis.

And so that's basically IFRS 9 working for us. And in a nutshell, BNP Paribas stands, makes it well prepared for potential tougher times. And these are all elements that bode well for the achievement of our planned target of cost of risk of 40 basis points over outstanding. As you know, as a result of our solid track record, high profitability and growth potential, we have increased our ordinary payout ratio by 10 points up to 60%, and this since, last year, in the context of our strategic plan, GTS 2025. On Slide 7, and as a reminder, you can find a way we structured our payout ratio.

First, we committed to a cash dividend portion of a minimum of 50%, with a complement by way of share buyback up to 10%, the combination of the 2 being about 50% plus 10%, 60%, right? In addition, and as mentioned in December 2021, the sale of Bank of the West will result in an exceptional distribution by way of share buybacks for an amount of around €4 billion and is to neutralize the dilution of earnings. Therefore, we have put in 2 reserves starting in the first quarter '22, 60% of our earnings, net of the contribution of Bank of the West. For the same reason, the exceptional capital gain on the sale will not lead to ordinary distribution. So if -- with this, I can ask you to swipe to Slide 9. You can see that exceptional items for the second quarter are slightly negative on the whole.

So the beat that you see is a real and true beat. Moreover, in Turkey, cumulative inflation over 3 years reached a level of 100%, and the impact of the effects induced by the hyperinflation situation in Turkey, 100%, are overall very limited for BNP Paribas as a consequence of the efficiency of our hedging. You can find the details in the annexes on the Slide 64. With this, you can swipe to Slide 10. Once again, you see the strong performance of the group in the second quarter and the jaws that accompany it.

The financial performance has improved year-over-year on all fronts, all the way down to the bottom line, leading to a net income up by a fair 9.1% or, as I mentioned earlier, 18.5%, excluding exceptional items. Looking back at those solid results, the group has delivered a return on tangible equity of 12.4%, way above our cost of equity and this with an earnings per share up by 13.5% versus the first 6 months of a year ago. So this is basically the group and how the group stands out. If we now look at the divisions that basically realize this, what do we see? So if we slide -- if we go, well, yes, if you slide to Page number 11, you can see that the operating divisions in total, it grew by a solid 9.7% year-on-year, 7.2% on a like-for-like. This growth has been achieved on the back of a strong performance of the operating divisions, reemphasizing the strength of our diversified model and our ability to capture growth.

CIB revenues grew sharply by 10.6% or 5.6% on a like-for-like basis. So consolidating market shares accelerating with the reinforcement of the businesses and triggering further cross-sell. So 11% on CIB but also 11% on CPBS with a strong increase, mainly driven by our Commercial and Personal Banking with the continued improvement in fees as well as the increase in net interest income. And this, combined with a very strong growth for our specialized businesses, think of Arval. In a challenging environment, the third division IPS, delivered an increase in revenues of 2.2%, with good performances in Wealth Management and Insurance more than offsetting the negative market impact on asset management.

If we now flick to Slide 12, where we look at costs. So they evolved by 8.6% or 5.7% on a like-for-like basis in the operating divisions, so generating positive jaws of 0.9. And this is at historical book and if you would look at constant scope of 1.5%. So this increase in cost is mainly driven by the strong business growth for the quarter and thus variable costs topped up by changes in parameter. As such, CIB delivered positive jaws of 0.6 points at constant scope and exchange rates.

CPBS delivered also this quarter very positive jaws as a result of its increased efficiency and change in operating model. Lastly, IPS, costs were up 6.7% year-on-year on the back of the support of business as well as targeted investments. If we now go to the other elements of the P&L, namely the cost of risk, and that's on Slide 13. You can see on Slide 13, as I mentioned, that it stood at a low level of 33 basis points of loans outstanding, slightly lower than in the same quarter a year ago. So this is mainly due to the

combination of: one, low impairment on nonperforming loans, so-called Stage 3 provisions; and two, an ex-ante type provisions, stages 1 and 2, for expected losses in relation to the indirect effects of the invasion of Ukraine and the higher inflation and interest rates context as detailed before.

But -- and thirdly, at the same time, we registered a release of provisions related to the public health crisis, so again, making IFRS 9 work. If we now move on to each business one by one, you will see the same pattern of low level of cost of risk with ex-ante provisioning for Personal Finance and Europe-Mediterranean mainly and releases of provisions related to the public health crisis. If we now turn to Slide 16, you can see our CET1 ratio standing at 12.2%. The contribution of the quarterly net result after considering, I cannot stress it enough, 60% ordinary payout and net of the impact pertaining to the organic growth of our risk-weighted assets. And so that growth, 60% dividend, risk-weighted asset growth led to a neutral effect on our common equity Tier 1 ratio.

And this is, again, as we have continued to support our clients and the economy, a stepped-up support for the economy in the light also of the upcoming sale of Bank of the West. Also, in a similar way to the first quarter, we continue to see the reversible impact of market prices on OCI, which resulted in an aggregated negative impact of 20 basis points. If you look at the leverage ratio, it stood at 3.8% this quarter, well above the current requirement of 3%. And I remind you that the group is keeping its 2025 target at 4.2% through ramping up of AT1s. If we then go to Slide 17, you can see the usual steady growth of our tangible net book value per share, standing at €78 at the end of June, up €1.7 compared to a year ago.

As you know, contributing to a responsible and sustainable economy is at the heart of BNP Paribas' company purpose and is a key pillar of our 2025 GTS plan. And as you can see on Slide 18, the group is fully engaged around 3 major priorities. First, this is about supporting our clients to achieve their carbon reduction goals and hence being in line with our own net zero trajectory. To do so, every single part of BNP Paribas is working relentlessly on assisting our clients to transition towards a more sustainable and low carbon economy. Second, we aim to foster a group-wide sustainability culture, which comes with the right monitoring tools, processes and governance to drive this effort.

Third, we are determined to deliver the net zero commitment that we have taken. To do so, we need to make sure that CO2 emissions of our clients financed by our lending books will be reduced over time and at the right speed to achieve carbon neutrality by 2050. Besides, not only do we have concrete innovative financing solutions and top-ranking positions in sustainable bond issuance, but we have also set for ourselves near-term reduction targets for 2025. So I will be still around to deliver on them, on 3 major sectors such as power, oil and gas, and automotive. If you now advance to Slide 19, you'll get an overview of concrete illustrations on how we are mobilizing BNP Paribas' distinctive model on 5 priority topics contributing to the achievement of the United Nations' sustainable

development goals: sustainable savings and financing, carbon neutrality, biodiversity, circular economy and social inclusion.

You can see with those concrete examples that each of them is clearly embedded in the development of our business. I'll leave you to peruse Slide 20 on internal control and compliance, emphasizing the rigorous and diligent implementation of all the necessary measures to the enforcement of international sanctions. So with this, fine ladies and gentlemen, I would like now kindly ask you to advance to the first quarter results by division, and it starts on Slide 22 with CIB, which saw another strong quarter, thanks to the new dimension of the setup, building on a diversified and integrated model with a stronger-than-ever capacity to support clients. Indeed, business activity was robust again this quarter, confirming our leading positions in EMEA, the ongoing development of our platforms and the successful implementation of our strategic moves that we completed last year and at the beginning of this year. If I walk through the 3 entities.

First, global banking delivered a very good performance with revenues at 0.8% year-on-year and demonstrated its capacity to overcome the unfavorable context with activities on the primary market down by 34%. And so this effect compensating, that was driven by a sharp increase in trade finance and cash management and this in all regions as well as a resilient performance by capital markets in Europe and higher M&A revenues. So in a nutshell, strong resilience for global banking with further gains in market shares in financing in Europe and worldwide and this with a prudent stance as always. Second division, supported by the continued and strong client activities and the new dimension of our setup. Global Markets saw a very robust growth with again, this quarter, a high demand for hedging activities across the board.

Hence, a very good performance for FICC with revenues increasing just shy of 15% year-on-year. Also, our equity activities show a good momentum on derivatives as well as prime services and clocked in at very good levels. In this context, revenues sharply increased by 16%. Our leadership was again confirmed with our number 1 position on bond issues in euros and the continued development of our electronic platforms. In this context, Global Markets' revenues saw a steep increase of 15.3%, well balanced between FICC and Equity & Prime Services.

Third and last, Securities Services saw again this quarter a very high volume of transactions on the back of a strong business drive and this in a challenging environment where the business saw a very good resiliency of assets on the back of the rollout of major new mandates that were won in '21 and the beginning of this year. And they sustained by a diversified set towards buy and sell side and further boosted by the positive impact of the interest rate environment. All in all, revenues increased by a material 16%, a very strong performance. So all this resulted in a sharp increase in CIB revenues, up 10.6% compared to a year ago. Total CIB costs were up 13% year-on-year in connection with the new expansion of the setup and the strong activity.

Hence, the growth at constant scope and exchange rate was 5% generating a positive jaws effect of 0.6 points on a like-for-like basis. If we go down further in the P&L, gross operating income of CIB was up 7.2% year-on-year and accompanied by a low cost of risk. Hence, CIB generated €1.7 billion of pretax income, up 5% compared to a year ago. To wrap up, a very good performance for CIB as a continued illustration of our leadership position, served by the new dimension of the platform, structuring our ability to match and serve corporate and institutional clients' needs while sticking to our prudent approach. So this is first division.

The second, Commercial, Personal Banking & Services, Slide 26 to 34. As you can see, CPBS maintained in the first quarter, a robust trajectory with a sustained business drive and very positive jaws. Commercial and Personal Banking, so one part of it, performed very well, and growth remained strong for the other part, the specialized businesses. In terms of activity, loans were up 7%. Deposits grew by 7.5% across all businesses.

Moreover, the division continued the transformation of its operating model on the back of further variabilization of costs like what we saw in BNL and development of technology, for instance, in Luxembourg. Turning to the specialized businesses. Arval confirmed the solid growth with a good organic growth in the finance fleet, 5.9% and very high used car prices. Outstandings are increasing at Leasing Solutions with a good resistance in business drives as well as in Personal Finance with a growth amplified by the integration of the buy now, pay later business. With respect to the new digital businesses, Nickel saw a record number of accounts opening this quarter in France and Spain, reaching more than 2.7 million accounts opened since inception of which more than 1 million over the last 2 years.

In terms of P&L. CPBS revenues were up sharply 11% on the second quarter with steep increase both in Commercial and Personal Banking and in specialized businesses. If we focus on the first, Commercial and Personal Banking, the performance was very solid and up 9.4%. Net interest income increased notably in the Euro zone by 8% supported by France, Belgium, Luxembourg but also in Europe met by 57% on a like-for-like basis on the back of strong volumes in Poland and Turkey and favorable interest rates. Fees continued to mark a steep rise in all customer segments at plus 6% in the Euro zone and 28% in Euro-Med.

As a result, jaws were extremely positive in both regions. If we cross the Atlantic and go to the Pacific, in the U.S., BancWest maintained a robust business drive with a strong increase in loan production including loans to corporate clients and mortgages, but excluding in particular, the effect of the end of the PPP. If we now look at the other part, in CPBS, the specialized businesses, revenues were up 14.4%. Arval and Leasing Solutions saw a sharp increase of 33.6% on the back of high used car prices and volume growth. Personal Finance saw revenues up 3.9%, topped up by the integration of Floa to buy now, pay later and loan production volume increased by 8.9% on last year and this despite a lackluster environment in the automotive industry.

If we look at the cost of CPBS, they were up 6.5%, reflecting the strong business momentum with very positive jaws this quarter, 4.5 points. This is a clear testimony of the capacity of our Commercial and Personal Banking networks to contain their costs and deliver high positive jaws. Similarly, the specialized businesses confirm their potential to grow at marginal cost with an extremely high positive jaws effect for Arval and Leasing Solutions, 26.7 points. Hence, pretax stood at €2.4 billion this quarter, delivering what else can I say, a distinguished 35% rise last year, including the limited and positive overall impact of the hyperinflation situation in Turkey of €23 million and thanks to the efficiency of hedging. To conclude on CPBS, a very strong quarter in all businesses and geographies with very positive jaws, a significant increase in gross operating income and an improvement in cost of risk.

Having said all this, let's now move to Slides 35 to 38, where we have Investment & Protection Services. They witnessed an overall good business drive despite the market environment and a very good resilience in results. Indeed, in a difficult context, net asset inflows held up well and marked a good resilience with an overall positive evolution. In Wealth Management, business activity was good this quarter on the back of very good net asset inflows driven by Europe and growth in transaction fees, particularly in Asia. Despite challenging market conditions, Asset Management had slightly positive net asset flows -- inflows this quarter with significant outflows in money market funds, offset by inflows in medium- and long-term vehicles, emphasizing the resilience provided by the business model.

Insurance saw a continued business drive with a good momentum on savings and protection. Net asset inflows were good in unit-linked products. Gross inflows were strong in France. Simultaneously, on ESG, the division is rolling out its well-regarded impact offering and continues to develop the distribution of open-ended funds classified Article 8 and 9 in Europe. When we focus on the P&L, IPS revenues stood at €1.7 billion, up 2.2% and this despite the unfavorable environment.

This is the result of good performance on insurance, 2.7%, combined with the resilience on the whole of Wealth and Asset Management plus 1.9% and notably, growth in real estate advisory. Costs, up 6.7%, driven by business developments and targeted investments. Pretax income, up 1.1% year-on-year, a very good performance in the context. So to wrap up, a strong resilience for IPS in a very adverse market context. If I can now ask you to swipe to Slides 40 and 41 to conclude my presentation.

As a key takeaway, I would like you to keep

in mind: one, the group is on a solid trajectory as demonstrated by the performance for the first quarter. Second, BNP Paribas' distinctive model is clearly supporting our growth in revenues and our operational performance keeps on being high, resulting in positive jaws. Three, our cost of risk remains low on the back of our long-term proactive and prudent risk management sustaining the resilience of our results. Four, in a nutshell, a powerful model, which delivers a strong growth in results outperforms the underlying economy and ensure the successful execution of the 2025 group objectives as reminded before. This, fine ladies and gentlemen, concludes the second quarter 2022 results presentation.

I thank you for your kind attention, and I'm very pleased to take your questions.

Operator: [Operator Instructions] First question from Tarik El Mejjad from Bank of America. Tarik

El Mejjad: And congratulations for these excellent results. I have 2 questions, please. The first one on costs.

I mean it's great you have positive jaws in the first half, but I would say the tough times still to come. And how do you prepare to the renegotiation of salaries? And where do you see the potential uptick in costs coming from that? I know you guided on jaws, which I agree is something we need to -- one should focus on. But given where we see revenues growing and the cost could accelerate, how do you see the cost evolving there? And still on cost, I mean, we've seen other industries and banks, some strikes, some social protests and pushing really -- putting pressure on some sectors to high cost probably higher than what inflation is developed. How do you see that in the banking sector? And then the second question is on the CIB. Last week or this week, the Credit Suisse announced exiting some structural credit products.

Given your push to CIB and being a bank that offers a whole suite of products, would that be something of interest? Will you be ready to take on €20 billion of RWAs? I guess it's [Indiscernible] capital point of view, but more from a strategic point of view, that's something you'd be keen to check on board?

Lars Machenil: Tarik, thank you very much. And so yes, apparently, you said good morning. So good morning to you as well. If we look first at your cost question, as a quick reminder. So if you look at the evolution, half of the evolution is basically variable costs, yes, so costs supporting the revenue.

So those costs will be there as long as the revenues are there. Secondly, basically, the other half is coming from the perimeter transits. So if you look at the costs, there are things that were not there a year ago, take ex-ante and what have you not. So if you look through that, you basically get a traditional run of the mill of 1.5%, which is in line with what we anticipate to be doing. And so going forward, in the environment, why do we feel comfortable? Well, we feel comfortable in the way we said, we operate with operating jaws.

And so what are the elements that we have and that we basically will do more of. And so there are several things. Why do we feel comfortable to have the jaws? It's because we operate from platforms. So if we operate somewhere or if we want to add operations somewhere, we don't have to go and open a bank or buy a bank or have a bank and whatever with all the fixed costs that come with it. We basically use our platforms and we can grow at marginal cost.

That's what we do. Moreover, we are adding more platforms. So there are activities that we did in the past, still, let's say, locally in every city, what have you not. And we're basically moving them on a platform. So we keep on growing with the existing platforms we have, and we keep on adding platforms.

Moreover, in all the projects that we launched in the planned GTS 2025, we are also taking up an impact that it will have to lead to cost savings and, therefore, we have seen that or we have planned that, that would bring €2 billion in cost savings. So that's a bit going forward how we say. So we grow by platforms, and we have more of those platforms and we have cost savings in the plan GTS '25. So that's a bit the stance on the cost. When it comes to your concern on social onerous, listen, in the countries where we are typically, these things lead to discussions and that can be different one country to another, yes.

For example, in France, there might be some constraints on some products, but at the same time, the French authorities are not going to tax banking. In some countries, it might be different. There are probably no constraints on products, but there is a banking tax coming. So that's what, if you look at what we have been doing in the past in the countries where we are, we have been managing this, I think, in a very good way. When it comes to CIB and adding on, I remind you that, indeed, based on the proceeds of Bank of the West, that we would redeploy.

And again, our objective is not to redeploy in a bank or what have you not, yes. What it is, we said basically, there is 3/3 in what we see. There is 1/3 where we basically say it will allow us to grow a bit faster. And that's basically already that we are doing. Then there is 1/3 where we say we would use it for technology.

Yes, these are the things that what we have done, for example, with the buy now, pay later technology. So that is what we do. And then there is 1/3 where we can bolt on things. So not a bank, but we buy some activities in an area where it allows us to strengthen, yes? So that is what we look at. What it means it has to be bolting on.

So it has to be in an area where we already have things. It has to blend in with what we already have. And I'm frugal, so the price has to be right. So that's a bit the criteria that we use. So I'll leave it to that.

Those will be my 3 answers, Tarik.

Operator: Next question from Delphine Lee from JPMorgan.

Delphine Lee: So just two questions for me. If we could start with French Retail, where we've seen really a very strong NII performance. Just wanted to have a little bit of color around how much of that was driven by rate versus volume? What do you expect with the higher rates, which are coming by the end of the year? Any changes to your interest rate sensitivity? Any color would be very helpful.

And the second question, that would be on cost of risk. If you could share a little bit your IFRS 9 assumptions, I think you've added €500 million to Stage 1 and Stage 2. But just wonder if you could explain a bit the weighting of the different scenarios and also what are the assumptions of your severe scenario.

Lars Machenil: Thank you, Delphine, for your questions. So if we start with France.

So France, as you know, we have been -- we are fully focused on supporting our clients. And of course, what we have been doing if we start from last year, which was a bit -- I don't know exactly where you were, Delphine, but it was a bit movement in times. So we have a bit this return. But at the same time, we are really close to our clients. And so that basically means that we see that our clients, they need lending capacity.

So we are there. We are open for business fully. So we provide that lending in the volumes. Moreover, there are demands for fee-generating products, which is what we do. So that is basically all that we see.

With respect to your question on rates, yes, there is no effect in the current results of that. And if you look at it in general, as a remark, the good thing is, in Europe is that, I mean, the fact of negative interest rates was a bit bizarre period. So it is something that where it led us to have like truckloads of liquidity that we did not know really what to do with. And so from that point of view, the fact that the rates are no longer negative, that is basically a positive thing. If there will be further step-ups, there might be further step-up in rates.

But let's be fair, if you look at the bottom line, those step-ups will be made in order to fight the inflation. And so those effects will probably offset one another. So that would be on rates. On your question on the cost of risk, I suggest that you go into all the publications that you -- that we've made and where you can see the weightings that we have. And there is -- we are on a 30% rating -- weighting on the favorable scenario.

And so -- but I'll let you peruse those, yes? I can imagine that you know the mechanics that are behind it. We apply two models which are rather conservative, I would say, and that is why we added so many hundreds of cost of risks. But I'll let you peruse the elements. But on your question, the favorable has a weighting of 32%. So, Delphine, that would be my answer.

Operator: Your next question from Flora Bocahut from Jefferies.

Flora Bocahut: The first question I wanted to ask you is regarding the leverage ratio, which is, this quarter, still at 3.8%. And I see that the AT1 number dropped to, I think, €7.7 billion in Q2 or just 1% of RWA. So the first question is should we expect that there will be a significant increase in AT1 issuance by the end of this year and, therefore, higher AT1 costs that will hit the P&L in the coming quarters? Any guidance on this would be helpful. The second question is on the distribution plans around Bank of the West sale.

You had announced your intention to do a share buyback to offset the dilution effect. At the time of the announcement, so back in December last year, you had assessed that this corresponds to €4 billion of share buyback. We'll see upon closing. But as of today, if we were to update the dilution effect, I think we would land closer to €3 billion -- max €3.5 billion of buyback need. So just to understand how you are thinking about this? Do you stick to the €4 billion no matter what the move is or you will adjust depending on the market cap, capital ratio, everything at the time of closing?

Lars Machenil: Flora, thank you for your questions.

On leverage, and on AT1, just jokingly, I must have fallen a fixed income call, right? But joking aside, no, the leverage ratio, we said that over the plan, the trajectory, we would go to 4.2 points leverage ratio. We would be doing this by stepping up our AT1 to accompany the growth. And so that's what we said. So we said we would issue €3 billion in a year. So that's basically what we will continue to do.

Again, if I looked outside over the last couple of weeks, the market was a bit shaken. So it is just timing. So what we will do is basically that €3 billion that we announced, and that's in the plan, and that's in all the figures that we have. So that is what we will continue to do. On Bank of the West, yes, there are many ways that you can look at.

You can say, "Hey, your share price is now lower." But then, Flora, you're very nice to me. You could also say the dollar is stronger. So if you look at all of these elements. In the end, €4 billion will be the amount.

Operator: Next question from Giulia Miotto from Morgan Stanley.

Giulia Miotto: A couple of questions from me as well, please. The first one, loan growth continues to be very strong. Do you see this continuing? Or do you see it turning off towards the end of the year? And where do you see the best pockets for growth on the lending side? That's my first question. And then going back to the €511 million of provisions related to Ukraine and forward-looking essentially provisions, do I understand you correctly that these are based on the revision of macro assumptions rather than a bottom-up exercise, looking at which corporates are exposed to Russia, to Ukraine, to specific supply chains, et cetera? And if you have done such exercise, would you be able to share what part of your loan book could potentially be subject to disruption?

Lars Machenil: Giulia, thank you for your questions. If I start with the last one.

So if you look at this S1 and S2 calculation, it is much wider than just Russia or Ukraine. To be frank, if you look at it, our exposure in Russia is so low. It doesn't really matter. So what it is, the way it works is we have a model which basically reflects the customers that we have in the book. So it basically reflects the type, it respects their behavior and so forth.

And what we have said is, basically, there could be an effect spreading from inflation all of those other elements. And so that's the scenario. And that's a scenario we apply. So the impact, it is not Russia. Russia is very small into that given we are such a small player.

It's the overall adverse scenario that basically makes us -- provides us the underbuilding of this anticipation. But let's not forget, right, I mean the same modeling that we applied in 2020 for the COVID led to €1.5 billion, and we basically didn't use any of that, yes? So this to show a bit how the modeling that we have is very conservative. Then on your other question on loan growth, on the loan growth, yes, it has been strong. It has been strong because it was a bit low last year. And it also has a bit been boosted because on the corporate side, the primary market was Med area.

So corporates that were intending to normally go to the primary market, it was closed. They found the phone. They called us and we helped them. So that's a bit it. Now will this continue? Listen, my crystal ball is broken.

So -- but the thing that I can say is that, at BNP Paribas, if you look at us, I mean, we are very solid. We have liquid like there is no tomorrow and what have you not. And so we are there to accompany our clients, and we're ready to accompany them in all kind or forms, yes? Is it primary market? Is it lending? Is it whatever? And so for us, listen, I don't have a crystal ball to tell you what it will be, but we are there to do so. And we see that Europe is putting a lot of sails in order to -- sails into ensuring that there are investments happening for the sustainability, that there are investments happening in the sectors where apparently Europe discovered that it was not represented and so like -- so that's a bit it. So that's what I see, we see in Europe, and we are very well positioned to accompany that.

So Giulia, that will be my 2 answers.

Operator: Next question from Stefan Stalmann from Autonomous Research.

Stefan Stalmann: Two questions from my side. So the first one on the hyperinflation accounting around Turkey. You're mentioning this €0.5 billion benefit to your shareholders' equity from this.

And has that become a net benefit to your CET1 ratio as well? Or have they been offsetting moves to other parts of the equation? And the second question goes back to the BancWest sale. Clearly, you mentioned the dollar is a lot stronger. And in euro terms, the sales prices was €1.5 billion more. And in December, I know you have said that you have hedged, I would just wonder if you could clarify how you have hedged? Have you literally locked in the dollar rate in December? Or have you used an option structure that has protected you against the downside that retains a lot of the upside?

Lars Machenil: Thank you, Stefan. So if I first look at the hedging or the hyperinflation.

So in hyperinflation, this is typically something. If you look, there are impacts in the P&L and in capital. If you look at the P&L, on one hand, what you have -- if you have on the liability side, you have your cash. And so with inflation going up, that cash goes down. So you have a negative impact to the P&L.

At the same time, you have your assets which are yielding more because the rates go up. And so therefore, if you take those 2 effects given the way we are basically hedged, the P&L effect is neutral. And basically, the same is true in capital. So in capital, you have, indeed, again, the hyperinflation who is having a pickup on the side of your equity. However, the ForEx effect is basically compensating this.

So this is -- I mean, yes, it's easy to say that hyperinflation at BNP Paribas is basically nonmaterial, but there are several moves that basically compensate those. So that's on the hyperinflation. And then when we look at €4 billion, so yes, I mean, the €4 billion, as I said, when we did the deal, our objective was not to -- now all of a sudden become a trading firm and have those €5 billion or €4 billion to be positioned. So for us, basically, in what we typically do -- if you look at what we have in dollars, there are many moving parts, yes? So there are the activities themselves. There is the capital that we have and so on.

And so there are many moving parts. And so what we basically take is that overall position is basically not an open position, yes? So we lock in some forward pricing. So it's something where we want to avoid the effect. And all in all, let's be fair. That's why I basically say I don't want to abuse the fact that the share price has gone down or that the dollar has got stronger.

That is why we basically say we will return the €4 billion to you.

Operator: Next question from Jacques-Henri Gaulard from Kepler Cheuvreux. Mr. Gaulard, your microphone is open. Maybe you are on mute?

Lars Machenil: Maybe I answered his question?

Operator: Yes, maybe so, next thing...

Jacques-Henri Gaulard : Sorry. Can you hear me? Can you hear me?

Operator: Yes. Jacques-Henri Gaulard : Apologies. I had indeed closed my mic. So 2 questions, Lars.

The first one, I just wanted to understand the mechanics of the ex-ante provision and the cost of risk of the bank generally. In effect, you provisioned €465 million of Stage 3, then €511 million of Stage 1 and 2, net of €187 million of release. Is that the right way to look at it? And as you've released from the public health provisioning, just to have a view about what the stock of the public health provision is, that's the first question. And the second question, yes, you were mentioning that in one of your answers about the one thing which we've been completely alarming, frankly, has been the Spanish bank tax, together with the Turkish moratoria. And all these things, whereby governments feel very happy that they can just take on the cash of the banks and actually make themselves happy politically, it's probably a bit of a relationship here with your own risk premium, which remains insanely high, considering the type of results you deliver.

Aren't you afraid, to put long story short, Lars, in all your different markets that you're going to be taxed again? And how comfortable do you feel now that your SRF going to 0, which is a key part of your plan is really going to go to 0 or more or less by 2024?

Lars Machenil: Jacques, thank you for your questions. Now if we go again through the ex-ante provisions. So indeed, if you look at the numbers, so there is, let's call it, S1, S2 to be forward-looking and then the S3 on the other one. So the S3, that is what we see. We have companies, counterparties, individuals that run into difficulties and that we provision in a normal way.

And so the amount that we have provisioned is rather low because, at this stage, well, we don't see many of these things happening. And then you have the ex-ante, and so in the ex-ante, that's basically how it works. So the way it works is that you can at some point in time have a scenario, which is negative going forward and for which you provision. And so that's what we did in 2020 saying there is the COVID, which will have an impact, and therefore, we basically provisioned €1.4 billion. And then the way it works under IFRS 9, every quarter, you basically have to look how your scenario is realizing.

And so what we see, for example, this quarter is that the COVID scenario that we had in mind, the fraction that we thought that would be realized this quarter is not realizing. So that is why we had to write back roughly that €200 million. Now at the same time, there is a new scenario that we think we can imagine is that -- what we said earlier is that there will be a spill-on effect of what we see in Eastern Europe and so forth. And if we do that, then we basically step up €500 million. So all in all, if you bring that together, you basically get like a tad more than €1.4 billion in reserves, which is partially stemming from the COVID period, partially stemming from this period.

So that is the dynamic, but they are both forward-looking and of course, should be available if things happen. So that's basically where we stand. Then on your question of the activities. So indeed, there are some observations that you can see in some countries. But it also depends on how the overall infrastructure is in place.

And so if you look at some of those countries, they are -- basically, the pricing is relative so therefore, the pricing will go up when interest rates go up. And therefore, that can trigger some governments to do something. Now if you look rather in the countries where we are, you basically see that the products themselves that banks have already contained some protection for customers. And that is why I anticipate, like in France, where basically, clearly, the finance minister, he said that there would be no additional taxes on these kind of things, so we feel comfortable that in the countries where we are, this will be okay. And moreover on your question on the single resolution front, and let me remind you that this is a total different ball game.

The single resolution fund is there because a law has been voted, and that law is basically saying it ends in 2023. So who am I to say, yes? So that will basically end, and that's basically where we stand. So Jacques, those are my answers.

Operator: And next question from Matthew Clark from Mediobanca.

Matthew Clark: So a couple of questions.

Firstly, on the French Retail Banking -- sorry, it's not called that anymore. But the net interest income was up very steeply versus the first quarter. So I just wanted to understand is this a sustainable run rate and what products specifically have driven that increase if it is a sustainable run rate.

Lars Machenil: There was a bit of noise. Sorry, can you rephrase your question? I missed the beginning of your question.

Matthew Clark: Sure. So it's a question on net interest income in the French Customer and Personal Banking division, which increased, I think, it was 8% or 9% versus the first quarter. So I just wanted to understand whether that second quarter net interest income level in that division is sustainable or if there are some lumpy items in there going forward? And then the second question is on your disclosure of revenue and cost growth at constant scope and FX within global markets. I just want to understand whether you are only adjusting for the Exane acquisition? Or are you also adjusting for the DB Prime acquisition? And if you are only adjusting for the Exane acquisition, could you give us the impact on revenue and cost year-on-year from DB Prime?

Lars Machenil: Thank you for -- let's not forget, the prime brokerage transfer, it already started a year ago. So it's not in the perimeter effect, so the effect in what we call constant scope and exchange rate.

So the scope is Exane. And then, of course, there is the dollar and the Turkish Lira and what have you not. So the prime brokerage is not considered as a scope change. Then on your net interest income, when you look in France. So the net interest income is depending on things like what volumes and what kind of interactions that we are having.

So again, if you look at it, it has been -- if you look at the volumes, they have been solid and therefore, that as well. So overall, I would rather say there is this mix of kind of services that can step up, and sometimes it can be more interest income. Sometimes it can be more fees. So overall, I would look at the total income rather than just that supply. So that will be my 2 answers.

Matthew Clark: Okay. Can I just come back on -- I understand that you haven't included the DB Prime in your adjustment, but presumably, that has been a material contributor year-on-year because you haven't transferred any clients across this time last year. So can you give us some guidance on that impact year-on-year?

Lars Machenil: Remember, we basically phased -- during last year, we phased it in. And so that meant that we were not able to have clients on board. So -- and then on top of when you look at it, several of the clients basically switched into the systems that BNP Paribas had.

So that is why the element of just singling it out is done. So that's basically that. But if you want the total number, as a reminder, right, we guided that prime brokerage would be full year €400 million in revenues.

Matthew Clark: Can you give the cost impact full year?

Lars Machenil: Listen, that's typically a run rate at 60...

Operator: Next question from Mate Nemes from UBS.

Lars Machenil: Wait a second. Wait a second. Just, I don't know if you heard any. So it basically said it's a 60% cost-income ratio. I don't know if that came across.

Operator: Next question from Mate Nemes from UBS.

Mate Nemes: I have 2 questions, please. First one is on provisioning. I wanted to go back to the ex-ante provisioning that you described, the plus more than €500 million in Q2. I'm just wondering, does that amount also include potential provisions for scenarios including in a duration in certain markets, for example, Poland or Italy? Would that amount be simply a function of certain scenarios, inflation and interest rates? That's the first question.

The second question is on the French bank. I'm just wondering if you could give us a sense of what the recent increase of EBITDA to 2% could mean for NII in the second half?

Lars Machenil: Thank you. So first of all, on the provisioning. So indeed, as I mentioned, what we do is we run several scenarios, yes? Don't ask me to tell you that this is then for what we guide. So we have a whole set of scenarios that we run, and that basically lead to a deterioration, which allows us to provision this.

So that's a bit the way it works. So the kind of models and the kind of things that we run doesn't imply anything on what we see. That is the likely scenario. We run a whole set of them leading to this kind of impact. So that's on the provisioning.

And then when you look indeed, in France, so in France, the [Indiscernible] is basically a deposit product that basically has a return which is linked to inflation. And so if you look at it, at BNP Paribas, as I mentioned, we are basically a bank focused on corporate, commercial, affluent and the like. So our market share within that is rather small, yes. We have less than 5% in market share in that in France. And therefore, if you look at this year, you basically see no impact because it's part of our overall hedging that we talked earlier.

So that's basically where we stand. I want to, if I may, have one further clarifying question, basically, I get whispered in my ear that in the answer to Stefan, I maybe was not totally clear. So Stefan asked a question on the hyperinflation. And I said there were positive and negative effects both in the P&L and the capital that compensate. So in the P&L, there is the liabilities that go down in value and the assets that go up in value in the P&L, and they basically compensate.

When you look at the capital, so in the balance sheet, there is the positive effect of the hedging and the hyperinflation, and there is the negative effect of the ForEx. And so they basically offset in the capital. So that is what I wanted to clarify going forward.

Operator: Next question from Anke Reingen from Bank of America -- of Canada, sorry.

Anke Reingen: The first one is on the cost of risk.

I just want to understand the 40 basis points you mentioned for this year. Could you actually do better? Or are you basically trying how you currently see the situation? Or should we see a step up in the second half to end up at 40 basis points on your current point of view? And then secondly, I just wanted to confirm something you mentioned about the cost evolution. And I think I heard you saying that half of the cost evolution about, say, 1.5 percentage point increase is due to variable costs, which seems relatively encouraging, relatively high. Is that basically variable compensation and investments? And should we understand from that point that this part could slow down, obviously, if we see a revenue slowdown in the second half?

Lars Machenil: Okay. Thank you for your questions.

If I take the cost evolution first and then the 40 basis points. So yes, when we talked about those variable costs, when I call them it's the variable costs related to the ones that generate revenue, yes. So they typically would disappear with it. And so yes, what is it? It can be a point in sale cost, yes? If something happens in a point in sale, it generates revenues, but it comes at the cost related to that point in sale. So that is, for example, all of the activity that we do, where we provide our services, not through our own networks but through the networks of others and that, for example, that.

And it can also be transaction-related payments and the like. So that's the cost. So we have intrinsically those costs. If the revenues disappear, those costs disappear. And then on the 40 basis points, Anke, listen, I don't have a crystal ball.

But what I would expect is that I would have expected to have a run rate of 40 basis points. So that run rate has been below in the first and the second quarter. So my hypothesis in the modeling is, I would put 40 basis points in the third and the fourth quarter. So yes, it is not impossible that we end up lower than 40% on the year.

Operator: Your next question from Kiri Vijayarajah from HSBC.

Kiri Vijayarajah: Lars, just a couple of questions from my side. So firstly, on BancWest, is there any impact elsewhere in the group from the sale of BancWest, maybe lots of access to cheap U.S. dollar funding, maybe impacting CIB or anything else, like that we need to think about? And can I just clarify that you keep access to the Fed window after you lose BancWest? So overall, it's a fairly clean separation. There's kind of no -- kind of negative synergies we need to think about? And then secondly, on the G-SIB buckets and the more favorable treatment of exposures within the euro bank, when do you think we're likely to see that benefit actually come through for you guys or the European banks in terms of SREP requirements? And specifically for you guys, do we actually move the needle when you think about your 12% CET1 target? Because I think in the past, that 12% has been fairly set in stone. So just some clarification there, please.

Lars Machenil: Kiri, thank you for your questions. Yes, well, if you look at BancWest and what -- the typical things, if this would be -- if you look in Europe, if you would sell an entity, well, we would have, of course, have all those links with all the other parties like the cross-selling and so forth. But BancWest being on the, well, two oceans away, the cross-sell is relatively limited. On the contrary, it could be -- if we have a very good relationship with the buyer, it could basically lead to that. So there's basically nothing to lose on that.

And on the financing, remember, on the financing with the arrival of the IHC and being the 2 coasts being regulated -- while the banks on the 2 coasts being regulated by different supervisors, the financing one way to another does not really impact. So from that point of view, there is no impact of Bank of the West on the rest of the bank by the fact that there will be a lot of money available to redeploy in Europe. So that's basically Bank of the West. And then on the G-SIB, the thing is -- listen, the -- the main driver for G-SIB is size of your balance sheet, right? If you'd get larger, you will consider more systemic. And then there was this peculiar thing in Europe.

We're basically saying, if you are in 2 countries in Europe, basically, your balance sheet doubles, yes, which is a bit ridiculous. And so that meant that on the trajectory where we were, we would -- we could have balanced into a higher G-SIB score because of that. And now with what has been voted in Europe and with basically [Indiscernible] is taking on, we will basically not be European banks that are international will not be negatively impacted. So a large European bank will be treated in the same way as Bank of America or whatever bank that is based in the U.S. is treated.

So Kiri, that will be my answers.

Operator: Mr. Machenil, we have no more questions by phone.

Lars Machenil: And thank you very much. I want to thank you all for your continued interest.

You have seen the strong results of BNP Paribas, how it is there to accompany the economy and will continue to do so. Thank you very much. Wishing you a great weekend.

Operator: Thank you, ladies and gentlemen. This concludes the call of BNP Paribas second quarter 2022 results.

Thank you for your participation. You may now disconnect.