Executives: Lars Machenil - Chief Financial

Officer
Analysts: Delphine Lee - JPMorgan Jean-Francois Neuez - Goldman Sachs Jon Peace - Credit Suisse Bruce Hamilton - Morgan Stanley Maxence Le Gouvello - Jefferies Kiri Vijayarajah - HSBC Nick Davey - Redburn Anke Reingen - Royal Bank of Canada Jacques-Henri Gaulard - Kepler Cheuvreux Pierre Chedeville - CM-CIC Market Solutions Alex Koagne - Oddo Securities

Lars Machenil: Thank you. Good afternoon, fine, ladies and gentlemen, and welcome to BNP Paribas Third Quarter 2018 Results Presentation. I trust you have all got a copy of the results presentation in front of you. And in our usual way, I will take you through the first two chapters before handing it over to you for Q&A. So if we start on Slide 3 where you see that BNP Paribas delivered a good level of net income, business activity continued to progress with outstanding loans up by 4.2% year-on-year in the context of contrasted economic growth and with still lackluster market context in Europe.

Revenues of the operating divisions were up 0.8% on a comparable basis, with strong growth of the IFS division, slightly lower revenues at domestic markets on the back of the low rate environment and within CIB, still unfavorable context profit activities in Europe. If we look at the cost of the operating divisions, they were 1.4% higher as a result of the continued development of, in particular, the specialized businesses. However, they marked decrease in retail networks and CIB. I will come back on cost a bit later when we talk about on specific slide about costs. Cost of risk at group level was still at a low level, equivalent to 34 basis points of outstanding, essentially in line with the third quarter 2017.

So if we tie this altogether, the group’s net results stood at a good level as I said equal to €2.1 billion, 4% higher than in the third quarter of last year. Net of one-offs, it was in line with last year and equated to a return on tangible equity of 11%. In terms of financial structure, the group has a very solid balance sheet as its fully loaded common equity Tier 1 ratio increased 25 basis points to end up at 11.7% at the end of September. If you now swipe to Slide 6, you can see the performance of the group and of the operating divisions in the third quarter. As you can see, the net income is basically in line with last year net of one-off.

Excluding them, in the first 9 months of the year, the group delivered annualized return on equity of 9.5% or as I said, 11% in terms of tangible equity. If we now turn to the revenues of the operating divisions on Slide 7 that progressed by 0.3% or 0.8% in what we call constant scope and exchange rates to make it comparable. They were 1.1% lower at domestic markets due to the still low interest rate environment, which was partly offset by good business development, particularly in the specialized businesses. They were up 4.3% at IFS on the back of good growth and despite an adverse ForEx effect. At constant scope and exchange rates, they were actually 7% up.

When we look at the third one, CIB, the revenues decreased by 3.5% due to a still lackluster market context for FICC in Europe this quarter. If we now go to the next one, Slide 8, which covers the cost of our operating divisions, they were up 2.1% or again at the constant scope and exchange rates, 1.4%. In domestic markets, costs were up just 0.2%, with a rise in the specialized businesses on the back of continued business development, but down by 1.3% on average for retail networks. IFS costs evolution reflected continued business growth, while CIB marked a decrease benefiting from cost savings. Allow me at this point to draw your attention.

So going forward, the priority for management will be to have positive jaws in 2019. And this by capturing the full effect of the cost savings generated by our transformation plan and by not having anymore bolt-on acquisitions, so basically focusing on the costs and delivering the positive jaws. Still on cost, if you now swipe to Slide 9, you will see that we continued to progress with the implementation of our transformation plan. And you see it in the third quarter we generated an additional €173 million recurring cost savings taking the cumulated cost savings since launch of the program to just above €1 billion and more billions are to come as you can see several savings are to come to the year and the year beyond. On that topic, we will basically provide an update halfway through the plan with our full year results in February.

But at the rate things are going, we confirm that the transformation charges will end in 2019 with total cost probably somewhere around 10% below the initial overall plan. So, that is basically the two elements of update I wanted to give you on the cost. If we now move to the cost of risk, I would kindly ask you to go to the three slides which start on Page 10. And you can see that it was still the cost of risk at the low level corresponding to 34 basis points and essentially in line with the third quarter a year ago, this on the back of the conservative stances taken in all of our businesses. Now if we take the businesses one by one, in corporate banking provisions were more than offset by write-backs.

If we now turn to Slide 11 on domestic markets, cost of risk was still low in retail despite the impact of a specific file in this quarter. The cost of risk was nil in Belgian retail and continued to decrease at BNL in Italy. If you now go to the third slide, Slide 12, with basically the other retail businesses, you see that personal finance saw an increase on the back of higher outstanding. I remind you that basically the pickup versus last year is solely due to IFRS 9 and also the first semester, the cost of risk was low because of sales of portfolio, so that’s basically it. Cost of risk doing fine at personal finance.

If we now look at Europe-Med, the cost of risk was up compared to the third quarter a year ago. I remind you that, that quarter had benefited from provisions of write-back and there is a small increase at the cost of risk as we saw in Turkey, half of that, again, due to IFRS 9. And if we conclude, the overview bank wise cost of risk was still very low. So basically, that’s the synthesis of the cost of risk, which as I said is intrinsically at the same level as we had it a year ago. If you now swipe to Slide 13 on the financial structure, you can see that our common equity Tier 1 ratio increased by 25 basis points in this quarter and clocked in at 11.7% and this on the combined effect of the sale of 30% of First Hawaiian Bank and the booking of two minor bolt-on acquisitions and those added basically 15 basis points to it.

In addition to third quarter results, excluding the capital gain of course on First Hawaiian and still allowing for a dividend of 50% added another 10 basis points and the risk weighted assets, excluding ForEx were stable, while order FX had altogether a limited effect. So the other elements, the leverage ratio clocked in at 4% and the liquidity coverage ratio at 110%, so all that is doing fine. And as you know, we also use available the liquidity reserve to express it in euros and cents and we basically have a massive €308 billion available at the end of September. So in a nutshell, the evolution of all of these ratios illustrates the group ability to manage its balance sheet in a disciplined manner and is also within the regulatory framework. If we now top off the overall view of the bank on Slide 14, you can see that our net book value per share stood at €73.03 at the end of September, showing a compounded annual growth rate of 5% since the year end of 2008.

I remind you that on the June 1, we paid €3.02 dividend per share and this slide basically highlights BNP Paribas’ continued value creation through the cycle. I will leave you now peruse the remaining slides of the introduction it’s on our ambitious policy of engagement in society and also a summary of the reinforcement of our internal controls. So, this is basically the overview of BNP Paribas. Let me now take you through the key elements of the divisions and let’s start on Page 18 with domestic markets. As you can see, domestic markets’ activity was up with good loan growth in the retail networks as well as in Arval and Leasing Solutions.

Deposits were also up on the back of growth in all countries. And private banking assets under management increased compared to the end of September 2017. Domestic markets have continued to develop new client experiences and to implement the digital transformation. Hello bank! for example, reached almost 3 million clients marking a near 14% increase year-on-year with good client acquisition, particularly in France where Hello bank! topped 400,000 clients at the end of September. Also important in domestic markets are the active mobile users that are increasing at a fast pace, 17% versus a year ago.

With enhanced mobile app features like, for instance, the addition of facial ID recognition for secure money transfers in Italy and the possibility of making all sorts of money transfer via mobile in France. Domestic markets, is also continuing to adopt the new banking uses as for example with LyfPay, a universal mobile payment solution, which has already exceeded 1 million downloads of its app since the launch, which was in May 2017. One word also on Nickel, which has strong growth on its customer segment in France and has opened more than 1 million accounts and I remind you it targets 2 million by 2020. Now, if we turn to the P&L, revenues were impacted and were reducing by 1.1% due to the persisting impact of the low interest rate environment which was partly offset by increased businesses and good growth in the specialized business. Operating costs were just 0.2% higher as the effect of the continued development of the specialized businesses was almost fully offset by the 1.3% average cost reduction in our retail network, on which you have more details on Slide 20, and which I touched upon in the introduction.

Given the reduction of the cost of risk, especially at BNL, pre-tax income showed good resilience at €956 million down 1.4% compared to a year ago. If we give a synthesis of each of the countries and businesses in domestic markets, I would like to highlight, in particular, French retail banking, which continued to show good business drive and renegotiations and early repayments confirmed that the sharp decrease that we observed since the summer of 2017. As a result, net interest income marked the further improvement and was quasi-stable versus the third quarter of 2017 and we expect therefore positive revenue and evolution in French retail in the last quarter of this year. If we now go and look at BNL, business activity was up with loans, deposits and all balance sheet savings growing. There was of course the impact of lower rates on revenues coupled with the positioning on the better rated clients and there were also some one-offs impacting this quarter.

And thanks to its continued cost of risk reduction due to its cautious positioning and the reviews we have done a couple of years ago, BNL showed a significant rise in income this quarter. If we now turn to Belgian Retail, it continued to show sustained business activity, but its revenues were impacted by the lower rate environment. Thanks to good cost control, it confirmed a significant contribution to the group’s results. And finally, to top it off, the specialized businesses continued to deliver good business drive and income growth in the third quarter. So, to wrap it up, good overall resilience for our domestic markets on the back of increased business activity and this despite the headwind of the lower rate environment.

If you now advance to Slide 26 on your device, you will see that our International Financial Services division continued its growth and showed sustained business activity. In particular, loans progressed well in particular at personal finance and assets under management of our insurance and savings businesses progressed by 2.4% year-on-year. The division is actively implementing its digital transformation and new technologies across all its businesses. It rolled out, for example, electronic signature in the international retail networks and personal finance where 1.1 million contracts were electronically signed this quarter. IFS is also developing new technologies and innovative products, with already 120 robots and 17 chat bots operational in different business lines.

If we now turn to the P&L, revenues stood at €4.1 billion, up 4.3% compared to the third quarter 2017 and this despite unfavorable ForEx effect mostly due to the depreciation of the Turkish lira. If we look at constant scope and exchange rates, revenues rose by 7%. Costs were up 6.1% or 6.3% at constant scope and exchange rates on the back of this business development. Other non-operating items included the capital gain from the sale of 30% of First Hawaiian Bank, €151 million. On the other hand last year, I reminded you that we had booked the €326 million capital gain from the sale of 4% of SBI Life.

So as a result, pre-tax income stood at €1.4 billion, down 19%, but only 4.4% at constant scope and exchange rates. If we now zoom rapidly over the different business lines one at a time, if you flip to Slide 28, personal finance that continued to show very good business drive in the third quarter, besides progressing with the integration of the GM Europe financing business. Outstanding loans were up 13.2% on a comparable basis, thanks to a favorable context across Europe and a positive effect of new partnerships. In terms of P&L, revenues progressed by 13.5% or 9.9% on a comparable basis, thanks to high volumes and the positioning on better risk products. Costs increased by 11% or 4.4% on a comparable basis with significantly positive jaws and pre-tax income stood at €424 million.

To recap, in a favorable context across Europe, personal finance continued to show a very good business drive. If we now move and look at international retail banking and let’s start with Europe-Med, which is on Slide 29. On a comparable basis, loans rose by 7% and deposits by 12.5% driven in particular by Turkey. At constant scope and exchange rate, Europe-Med’s revenues were up 16%, with an increase in all regions and in particularly in Turkey. Costs increased at a much slower pace than revenues generating significant positive jaws.

Cost of risk, which was at the low level last year as I said was affected by an increase in Turkey this quarter. Overall, Europe-Med’s pre-tax income showed good resilience, with minus 5% on a comparable basis, but was of course, 25% lower at the historical scope and exchange rates due to the significant depreciation of the Turkish lira over that period. If we now hop over the Atlantic and go to Slide 30 where we have BancWest, that continued its business rise in the third quarter and sold an additional 30% of First Hawaiian, as I mentioned. At constant scope and exchange rates, loans were up 1.1% net of securitization that we did I remind you in the fourth quarter 2017 and deposits increased by 1.5%. Still, at constant scope and exchange rates, revenues were up 0.8% on the back of volume growth and costs were 2% higher net of some non-recurring elements.

Overall, BancWest generated €286 million of pre-tax income, down 9% on last year, but 31.7% higher at historical scope and exchange rate on the back of the capital gain on First Hawaiian, so in a nutshell, a resilient performance for IRB this quarter. If you could now swipe to Slide 31, on our insurance and savings business that saw assets under management increased to €1.66 trillion at the end of September, making a 2.4% increase year-on-year. In the first 9 months of the year, we actually saw net asset inflow for a total of €16 billion driven in particular by the positive contribution of wealth management and insurance. The performance effect for the period was negative, but almost fully compensated by the integration this quarter of the assets under management deriving from the acquisition of ABN AMRO’s activities in Luxembourg. Okay.

So if we now rapidly focus on insurance first on Slide 32, where you see that it continued to show good development with strong net asset inflows and savings in both France and Italy as well as good performance in protection insurance in Asia. So as you can see, our insurance business showed good business growth and a significant drive in income on a comparable basis. If we now move to what we call in shorthand, WAN, so wealth and asset management, which you can see on Slide 33, where wealth management finalized the acquisition, as I said of ABN AMRO’s activities in Luxembourg that will strengthen its positioning on the large entrepreneurs in the country. Asset management was awarded the highest rating by the international network, PRI for its social responsibility investment and real estate confirmed strong business activity in particularly, in advisory in Germany, France and Italy, so continued business development in wealth and asset management in the third quarter. If I can now ask you to go to the third part of our activities and go to Slide 34 looking at corporate and institutional banking which operated this quarter in a lackluster market environment in Europe, especially for the FICC business given the context of low volatility ensuing from the monetary policy in the EU.

Revenues stood at close to €2.6 billion down 3.5% compared to the third quarter last year, with lower FICC but better equity and prime services within global markets, almost stable corporate banking and higher security services. If we look at total cost of CIB, they were once more down, down by 0.7% versus the third quarter 2017, thanks to the cost efficiency measures that have already generated €430 million of cumulative recurring savings since end ‘16 sorry. Leveraging its digital transformation, CIB has already automated some 120 processes out of 200 identified and is proceeding well with the implementation of its end-to-end projects with the release this quarter of the first feature for 2 out of the 4 namely client on-boarding and credit process. So in total, CIB generated €734 million of pre-tax income, down 5.6% compared to the third quarter last year. Thanks to the continued effect of the cost saving measures and active management of financial resources, which were down 3.5% versus the first 9 months of last year, CIB’s pre-tax return on equity held up well at 16% for the 9 months of the year.

Turning now to the next three slides 35 to 37, let’s look at the components of CIB business. So if we started on Page 35 with global markets, revenues were down 8.3% on the back of an atoned context for FICC activity in Europe as already seen in the first part of the year. However, this was partly offset by the performance of equity and prime services. The value at risk, which measures the level of market risk was still extremely low at €23 million. FICC revenues were actually down 15% year-on-year as client activity on rates remained weak in Europe and the market context was lackluster for ForEx and to a lesser extent for credit.

Even so, the business confirmed strong positions in bond issuance in the first 9 months, with the #1 ranking for all bonds issues in euros and #9 for all international issues. So, global markets focused on serving clients’ needs, sustaining market share and doing so delivering a pre-tax ROE above 16%. Next to FICC equities revenues, they progressed by 4.5% driven by growth in equity derivatives and a slight increase in prime services. If you now swipe to the next slide, 36, corporate banking revenues were down 1.9%, but basically were only 0.4%, excluding the transfer of the correspondent banking activity to securities services. So, it’s basically an internal reorganization within CIB.

And corporate banking showed good revenue resilience in a decreasing market context for syndicated loans where it confirmed its #1 position in the EMEA region. Transaction banking continued its good development in cash and trade with the business consolidating its leading position on trade finance in Europe. Corporate banking is also actively implementing its digital transformation as shown by the successful client on-boarding with Centric, our corporate digital platform that accounted over 9,400 clients at the end of September. Finally, if you flick to Slide 37, Securities Services increased by 5.6% and 2.7% net of the transfer of corresponding banking activity on the back of good business drive and the positive effect of new mandates. On the digital front, the business has already automated 40 processes, with 35 underway and is developing new services exploiting artificial intelligence for things like automated token generation and virtual assistants on client platforms.

So to wrap up, CIB has consolidated the market share gains of previous years and remained focused on digitalizing its business activity. Market conditions remained lackluster in Europe for the FICC business, but equities and securities services progressed. And corporate banking was nearly stable showing overall resilience, thanks to the diversification of our CIB model. This concludes my introductory remarks for the group third quarter results. And as a parting message, I would like you to retain that the group is actively implementing its ambitious policy of engagement in society.

The group is continuing the active rollout of new customer experiences and the group is implementing new digital transformation. Also in the third quarter, the group showed good business development in a still lackluster market context in Europe and thanks to its diversified business model, developed an increase in net income of €2.1 billion. So finally, ladies and gentlemen, I thank you for your kind attention and I will now be pleased to take your questions.

Operator: [Operator Instructions] We have the first question is from Madam Delphine Lee from JPMorgan. Madam, please go ahead.

Delphine Lee: Yes, good afternoon. Thanks for taking my questions. I actually have a few quick questions if you don’t mind. First of all, I just wanted to check if you could give us maybe a little bit more or quantify just the non-recurring items in the quarter in BNL revenues, the BancWest cost, the wealth and asset management costs? Secondly, if you don’t mind also just explaining a little bit in equities, the sharp – I mean seasonality that we are seeing, well it was the case over the last year between the first half and the second half. I mean anything that in terms of trends or that we should understand in terms of the quarterly performance? And another question as well on corporate center losses, I don’t know if there is anything that you want to flag, because I think it was a little bit higher than expected? And then lastly, if you don’t mind just on capital, the other ways this quarter were down a little bit.

And I am just wondering does that mean going forward that the model adjustments are down and should we expect any sort of impact from TRIM either for Q4 or ‘19? Thank you very much.

Lars Machenil: Delphine good afternoon. I will take them one by one. If we first look at BNL, yes, I mean, I cannot provide any names, but the non-recurring elements, for example, what you could imagine is an equity stake that we have to impair and that’s basically what it is. Now if you look at overall so this kind of effect weighed a bit on the top line evolution.

So going forward, the top line will improve, so this is not the typical run-rate that you would expect. This is what I would see going forward. On your question on equities, to be fair, yes, there is some seasonality, that’s why if you compare the results on equities, we compare it quarter-on-quarter, because this quarter, Q3 that has the summer months and the likes in it, so you should compare it to the quarter a year ago and so that is what you see and that is the evolution that you see. But as I said that third quarter is a bit different than the second quarter given as I said, there are summer holidays and the likes. Then if I go to the third question, on the corporate center, yes, on the corporate center, I remind you, we have some legacy businesses, which are in there.

When a couple of years ago, we had to in the new regulation of the liquidity and it had to basically consider summer activities as legacy and we let them rundown into the corporate center. And so that’s the kind of volatility. And overall as I said, this is a thing which is normally you have to look at it on a 9-month basis and that’s basically no concern. When it comes to the capital, indeed so the capital is the strengthening comes from the First Hawaiian, comes from the results. And secondly, if you look at the intrinsics are that we raise they are relatively established and they are established well for several reasons.

If there is limited demand in CIB, there will be limited capital redeployed as well. So, that’s basically what you see. So from that point of view, if there will be a pickup, for example, in CIB, well, there will be a pickup also on the risk weighted assets. So the main focus in whatever we do, for example, as I said in CIB, is the focus on the profitability. So we accompany our clients, we want to keep our market share, but we want to do this in a profitable way, so with a pre-tax return well above 16%.

So that would be my four answers, Delphine.

Delphine Lee: Just on capital, I think in the first half, you had some model adjustments, I mean is there something that we should expect for the rest of the year or ‘19 or do you think there is any impact from TRIM?

Lars Machenil: The thing is what we said earlier as you know if you are in advanced models, you have to do a review on a yearly basis looking back comparing your models with what the history has delivered. And so that is something we have to do. That’s just a bank. We have to do this.

And indeed earlier in the year, we had some reviews based on some of the historical evolutions we observed. There is nothing else we have observed for the moment, so there is nothing to announce on this.

Delphine Lee: Great. Thank you very much, Lars.

Operator: Thank you very much.

Next question from Mr. Jean-Francois Neuez from Goldman Sachs. Sir, please go ahead. Jean-

Francois Neuez: Hi, good afternoon. Jean-Francois Neuez from Goldman Sachs.

I have two questions. My first question is on the results of fixed income and capital markets in general. If I take the results of the top 12 banks for the past four quarters and I compare this to the past four quarters before in U.S. dollars, I will find that BNP has underperformed revenue growth by about 10%, 12% versus the top 12 global banks and about 8% versus other European banks, excluding U.S. banks.

My question is what do we change going forward to try to recover at least the cooling speed that is embedded in the plan, obviously later on catching up the lost ground so far? And the second question is more on capital versus dividend, so in the business plan, you had a 9% CAGR ambition for the dividend per share. And it also looks like the capital ratio as of today plus maybe the sale in SBI Life, which has been reported by the local subsidiaries, you would already be pro forma 12% core Tier 1 ratio or close to let’s say within the vicinity of. At that stage, if you would be, therefore exceeding that 2020 target in 2020 would you be willing to consider increasing the payout ratio in order to meet the CAGR target if your results come short essentially trading capital for EPS if you want and pay out?

Lars Machenil: Jean-Francois, thank you for your questions. On the first one, the way I look at it it’s always a bit – when you look at market shares and particularly if you look at it expressed in dollars, one has to be very careful with also the ForEx changes that you do. And then again even if you look at European banks, some of those European banks are not necessarily pan-European kind of banks and have a lot of activities, which are still in dollar-denominated.

So in our point of view, what we see and as I said, what we focus on, we focus on basically serving the client, having our market share and doing this at a profitable level and so that’s basically what we see. And as I said we don’t observe if you look in the details of the products and in the currencies, we don’t see a slippage in market share. So that is on FICC. And as I said I mean, we are fine with crystallizing our market share because we can do this while retaining profitability, as I said pre-tax, ROE of 16%. So we don’t want to shift one way or the other and so this is fine for us.

On your second question, on the capital position, intrinsically, we want to be at 12%. So if we would be above or whatever the intrinsic question that we will have to ask is we are not in the business of stacking up capital. However, let’s be fair, there is some reflection going on with respect to what was called Basel IV, which is now the finalization of Basel III. So we will have to see how that one if that pays out or not. But as I said, in fixed set of rules, we don’t have an ambition to accumulate capital above 12%.

Jean-

Francois Neuez: Okay. So the payout could be above 50 even if results came short just to secure the dividend promise?

Lars Machenil: As I said, we are in a set of fixed rules. We are not into the business of accumulating capital above. Jean-

Francois Neuez: Thank you very much. Very clear.

Operator: Thank you. Next question is from Mr. Jon Peace of Credit Suisse. Sir, please go ahead.

Jon Peace: Yes, thank you.

Hi, Lars. So, my first question was just to sort of clarify the comments you made earlier looking to give an update halfway through the plan with full year results. I mean, if everything on the plan still on track would you say, I think the plan basically works out as an EPS of about 8% per share in 2020 and consensus about 10% below that. But do you still feel you are on track for that, that level of profit? And my second question is just about stress test coming up this Friday as it operates under IFRS 9 for the first time, do you perceive it’s going to be more challenging and do you have any observations you can make? Thank you.

Lars Machenil: Thank you, Jon.

On the outlook of 2020, so the main outlook what we said is we aim for an ROE of 10%, which is at the core of what we want to do. And so if you look how the transformation plan is going as I said it is going well. We will definitely end it in 2019 and as I said roughly with a 10% lower cost than initially foreseen. And so that basically means that it will be supportive of reaching this ROE target. So that’s on the 2020 ROE target.

When it comes to the stress test, listen, there is not much I can say, right. We will all discover Friday what the outcome is. It is true that given IFRS 9, let’s not forget that intrinsically, IFRS 9 is over the cycle similar to IAS 39. So if you look at the overall impact that would be roughly the same. However, if you look at the shorter period in time than the cycle, let’s say stress test of 3 years, then IFRS 9 basically, front loads the cost of risk compared to IAS 39 who basically back-loaded it.

So, it is possible as you do a stress test and you look at the couple of years that there will be an impact, which will be somewhat different and higher than the IAS 39. But that’s basically as I said it’s through the cycle kind of effect and as you cut off the cycle, there might be some influence on that. So that will be my two answers, Jon. Thank you.

Operator: Thank you.

Next question from Mr. Bruce Hamilton of Morgan Stanley. Sir, please go ahead.

Bruce Hamilton: Yes, thanks. Thanks, Lars.

Maybe just to start with a clarifying question on the cost, so I think you just cost 10% below the original plan. I guess that’s a function of sort of FX and deconsolidation just to check. And then when I think about the operating jaws for 2019 an €800 million net benefit was had to what about 2.5% cost reduction, other things equal with some cost inflation, but will we see that earlier in the year or should we expect that’s going to be very sort of back-end loaded in terms of that operating jaws starting to see improvement? Thanks.

Lars Machenil: Bruce. So just to yes allow me to clarify, when I said 10% lower, I basically looked at the overall plan that we made when we made our transformation and we basically said it’s €3 billion that we will invest over the time.

And yes, there is some ForEx, but roughly, that is what it is. And so what I said at the speed at which we are going, it’s going to be finalized in 2019, but we will give an update in February probably with a total cost, which will be somewhat 10% below the €3 billion, so somewhere around €2.7 billion, something like that. So that is on the cost. And then sorry, your second question?

Bruce Hamilton: The jaws, yes, the jaws.

Lars Machenil: So the jaws as I said, I mean what we have if you look at this year we have to do and we still had the full cost of transformation that I said next year will be lower, but this year, it is there to be implemented.

Secondly, there is also a lot of – not a lot of several bolt-on acquisitions that we have done that basically come with cost in order to integrate and to capture the synergies going forward. And then also in our specialized businesses, we had to set up to capture the increased growth of the areas in which they are. So, this is something that you see and which is weighing on the cost evolution into 2018. However, when we know having done that, we basically said for 2019, a priority of management is this are these jaws. And so this basically means as I said the transformation cost will be basically be lower.

Secondly, there is no more add-on bolt-on acquisitions. The integration cost will not be there and the changes that we are doing to capturing the business they are being made and so they are there. So that is basically the main focus is as of to happen the full year to have that effect of the jaws positive.

Bruce Hamilton: Great. Thank you.

Operator: Thank you. Next question from Maxence Le Gouvello from Jefferies. Maxence

Le Gouvello: And the first one will be on BancWest, stripping out the capital gain we are getting to an average return on equity about 8% despite cost of risk of 22 bps. You spoke about some investment last year in the U.S. about insurance and private banking, when can we expect to have the benefit of those? The second question is regarding the NII on Belgium, can you give us a bit more color about the 6% drop, is it purely operating margin or is there some financial element that we need to be aware? Thank you.

Lars Machenil: Yes, Maxence thank you for your two questions. So on BancWest, it is true that as I said intrinsically, at BNP Paribas, we aim to be diversified. So, we aim to have a certain market share when it comes to retail activities, but we want to make sure that we have more market share when it comes into the adjacent things like insurance, like personal finance, like leasing and so forth. However, if you look at our Californian activity, which was let’s be fair, they were under different supervisor and so forth. So, they were much more separate and they were basically focused – they were having a market share in the plane retail, which was well above the market share that we had in the elements like wealth management, leasing and insurance.

And so the objective is really to turn that around, yes. So, we have 4% market share in retail in California, but we have market share below that when it comes to insurance, when it comes to wealth management and so forth. So we really bring our scale or tools or even our people into that to basically step up that evolution, but that is part of our 2020 plan. So let’s be very fair, we are going to start to see the effects in 2019 and we will have the first full effect more on to 2020. So that is the BancWest situation.

On your second question, in Belgium, yes, in Belgium, let’s be very fair. Belgium had the advantage that they were paying well advantage, they were paying on their liabilities and so when the rates came down, Belgium brought down the payments on the deposits and the advantage is that you re-price your entire balance sheet deposits. And so this is basically coming to an end as they basically touched almost zero and you cannot go negative by law. And so this means what they have to do is they have to re-price assets. The problem is re-pricing assets is not like liabilities, because liabilities is on the whole stock, assets is on the new production, so that takes much more time.

And then secondly, while we do this, there is still some competitive environment in Belgium that re-pricing does take some time. So that is basically what is behind this evolution. Maxence

Le Gouvello: Thank you.

Operator: Next question is from Kiri Vijayarajah from HSBC. Madam, please go ahead.

Kiri Vijayarajah: Yes, good afternoon Lars. So, just a couple of questions on capital, so firstly on the active management financial results as you mentioned in CIB, just an update on where we are in that process? Is it now largely done or is actually some other sort of balance sheet efficiencies you can still do in the CIB area? And then also secondly, just wondered if you have any early indications on how your 2019 SREP requirement might be shaping up, I know its early days, but any sort of preliminary thoughts on that would be helpful? Thank you.

Lars Machenil: Kiri, thank you for your questions. When it comes to capital on CIB, it is true that when we launched the plan, we identified that in the regulation, which was active at that moment there were some products that we consider legacy now meaning under the new regulation, we are requiring much more capital. And so we basically said that those products we would run them down, ramp them down and that’s basically done.

So in the meantime, we still see that there are other elements of regulation being reflected on and so we will have to see when these are crystallized, what we can do and how we can evolve products. And then the other thing is – so this is basically identifying legacy products and ramping them down and then the other option is to see if there are not particular points on which regulation is very nervous and that we see if those we can protect or hedge and so that is the thing that we keep on doing. So, this is a continuous flow of looking at how we can reduce the risk of the products that we have. So that is what we continue to do, SREP 2019. Listen, I don’t know, so I cannot tell you.

Kiri Vijayarajah: Okay, fair enough. Thank you.

Lars Machenil: Alright.

Operator: Thank you. Next question from Nick Davey from Redburn.

Please go ahead.

Nick Davey: Yes, good afternoon everyone. Can I ask three questions please? The first one just coming back to this question of the transformation costs, which you are saying will come in about 10% below the plan, can you 100% confirm that 2020 won’t have any transformation costs in it at all or is there still an update to come which may burden 2020? The second question, please, if you could just remind us where you are on Italian sovereign bonds, particularly in the AFS book. I can see there is a step down in your valuation reserve quarter-on-quarter by about €1 billion. So could you just talk us through the swing factors there, please? And then the third question please also just on Italy and BNL funding, could you just remind us where you are now on the intra-group funding into BNL? And also maybe the balance of Telstra, I think its €10 billion outstanding, just if you have started to have some thoughts about a) if you expect that to be rolled over by the ECB or b) what you would do if it wasn’t rolled over? Thank you.

Lars Machenil: Thank you, Nick. So yes, let me clarify, so what we basically said is given the progress of the transformation plan, it will end in 2019 and it will be basically lower at some 10%. So it will end in 2019 now. Honestly, if there is €1 million still remaining in 2020 that will be it, but basically, it’s done and there should be nothing material beyond that. When it comes to Italian sovereign, when we look in each of our entities at the funding of the balance sheet, we typically have a very diversified set of funding.

So, it can be funding through deposits, it can be funding to sovereign documents and so forth. And we basically said there is kind of a maximum limit that we want to go for. And that limit in Belgium, in Italy, in France is basically €10 billion. And let’s not forget that under IFRS, you have to make a choice if you have those instruments qualified as a whole to collect, so basically, shielding the impact of evolutions in your P&L. And so that’s basically what we have done.

So the majority that we have is in whole to collect, it’s relatively small amount, so it’s not really an issue. When it comes to the other elements of funding, it’s with the same thing. I mean, we want to keep some flexibility in the funding, so there is some intra-group funding that is being redeployed, but that’s still – and Italy is very limited, it’s around €7 billion of that we are having. And all the rest of what we have in secured lending and so forth, that is one would assume to be rolled over. And otherwise we will see how we have to adapt, because if one has to adapt if the ECB changes its funding, one has to look at overall what that basically means for Italy and that solution that is – will be one that we participate in.

So that’s basically it, so there is no really juicy point with respect to the funding in Italy it’s basically limited.

Nick Davey: Okay, thank you. Just quick follow-up. So, no juicy point, but I suppose it does beg the question if I suppose you are limiting sovereign exposure to €10 billion, would you also try and sort of limit intra-group funding into Italy to €10 billion as well because [indiscernible] as potential €10 billion of total?

Lars Machenil: Yes. Of course, it is.

I mean, let’s be fair. I mean, we want to have a diversified funding. So yes, it’s something the funding that we provide you can count it on the fingers of your hands.

Nick Davey: €6 billion is the number, is that right?

Lars Machenil: It has been around this amount for 4 years now, yes? So it’s going to be that amount and there is nothing particular.

Nick Davey: Okay, thank you.

Operator: Thank you. Next question comes from Anke Reingen from Royal Bank of Canada. Please go ahead.

Anke Reingen: Yes, thank you very much. Coming back to your 2020 targets, I understand your comments about investing, but I just wonder at what point will you take more action on cost to sort of like support your ROE target for 2020? And then secondly on your loan loss charges in personal finance, is that one-off or consolidation impact or should be considered Q3 as a run-rate? Thank you.

Lars Machenil: Anke, thank you for you questions. So no, as I said for 2020 targets, as I said, what we have in our plan, we are really fully focused on the return on equity that we set forward to reach. And so that is basically what we do and that is how we optimize the resources that we use. And one of the elements that we said is we will be able to deliver the transformation, which is part of it at a cost which is lower than what we have. And secondly in 2019, as I said, the focus will be on ensuring the positive jaws and therefore an improvement on the cost income.

So that is basically what we keep on doing. And as I said, we will give an update mid-plan when we publish the annual results in February. When it comes to personal finance, your cost of risk in Q3, so yes, there is a couple of things you should know. If you compare Q3 2018 with the Q3 of 2017, let’s not forget that 2017 – this is a bit technical, right, was IAS 39, whereas 2018 is IFRS 9. And what we’ve guided is that IFRS 9 when it comes to fast growing businesses has a higher cost of risk because you have to provision everything.

When you issue your loans you have to provision for a year and so that basically means if you are growing fast, your cost of risk expressed as basis point in the tier goes up. So, the evolution of the cost of risk between 2017 and 2018, we have guided at 20 basis points. So that is basically the list. And the second thing if you compare it to the first half of the year as we had sold some portfolios, we had some write-backs of the provisions, which basically lowered the cost of risk. So that’s basically how to read Q3 cost of risk.

Anke Reingen: Okay, thank you. And then can I please come back on the 2020 targets. So I understand you reiterated ROE targets, but does the 63% cost income ratio still stand?

Lars Machenil: Listen, there are elements, as I said, if we see that there are evolutions coming on things like taxes and that are falling in a specific line that might have evolutions on what it basically means on the cost income line if you have taxes falling in one or the other. The second – so that is a bit for the moment, honestly, with the evolutions that we have, the focus is really on ensuring the return on equity. And as I said, we are looking at the cost how to evolve it, but how all of it evolves, we will give you an update in February.

Anke Reingen: Okay, thank you.

Operator: Thank you. Next question is from Jacques-Henri Gaulard from Kepler Cheuvreux. Sir, please go ahead. Jacques-

Henri Gaulard: Yes, good morning.

Let me pass up to two questions, please. The first one is on asset management, where the metric again on the cost base remains disappointing it seems quarter-after-quarter and it seems that it is one division where you don’t manage to effectively make it completely work to that one. Any sort of comment as to how you can actually improve the situation, particularly at cost level on that one? And I know that excluding the wealth management, this division still posted outflows. And the second question is this morning, the large Spanish bank, BBVA, to mention it did give a reasonably negative guidance on Turkey. So, the question to you was what should we do without going into too much detail with the cost of risk of Europe-Mediterranean, should we proxy that 108 to the rest of the year and to the quarter or not, just to have a little bit of idea of how you see that developing? Thank you very much.

Lars Machenil: Thank you. First of all, on asset management, it is true that as you know, I mean, we keep our asset management in-house and so we basically decided to also have an evolution on the systems on which we operate. And so these systems are basically going through a whole change to get them into systems which have different levels of scale. And that is basically what is weighing on the cost. Then on your question on Turkey, so Turkey, let’s not forget, so the Turkey, we have, I mean, the market share that has you can count it on the fingers on one hand, right, first thing.

The second thing is that the bank is very well capitalized. It’s fully funding itself and has very strong management. And so that basically means that if you have some pressure on the economy and therefore on the cost of risk they work on it. They work on it to also re-price and position themselves. So when you do see a pickup in the cost of risk to make it, if you say that there is a €50 million increase at constant exchange rate, half of that is coming from IFRS 9 because of the outlooks which are different, the other half which is basically intrinsic of what we see, that other half is basically compensated by the net banking income, so by the top line because of the adaptations that the management has done.

So that is a bit of evolution. So overall, yes, there is some uncertainty in that environment. However, what is happening is that the bank is really adapting itself, has refocused itself since even a couple of years on the better quality counterparties and that is basically what you see and why the impact in particular, on the net banking income is really limited. Jacques-

Henri Gaulard: Very clear. Thank you, Lars.

Operator: Thank you. Next question is from Pierre Chedeville from CM-CIC Market Solutions. Sir, please go ahead.

Pierre Chedeville: Yes, good afternoon. I have a few questions.

Two quick and two more general. Quick question, could you give us the like-for-like basis evolution on overall domestic markets in revenues and expenses, because you don’t provide then in the slide as far as I know? The second question is could you explain exactly what is the rationale for the transfer of the correspondent banking to securities services, because it’s not clear for me because in my view correspondent banking is a pure trade banking activity? And I don’t see why you transfer it to securities services, if you could explain it in few words? And my last question is it refers to a general comment of Jean-Laurent Bonnafe at the beginning of the year. I remember in a group meeting you said that H2 will be probably – H2 2018 would be probably much better than H2 2017 and probably even better than H1 2018. Considering the general climate around the banking environment and your own results your own performance so far in 9 months would you do or Jean-Laurent Bonnafe will make the same comment as for now? Thank you very much.

Lars Machenil: Alright.

Pierre, on your first question, I am not going to list for the audience all of the PCC and so forth. So we will send them to you what it is. And then when it comes to the rationale of reorganizing some activities in CIB, let’s not forget that we of course independent of where they are booked, we have the coverage, which is done in a unique way. So, what is really driving to put it left, right or center is basically also the systems. So, we basically move it on to a same system and that this basically then what it means in the accounting.

But overall so it’s to capture the synergies and it will be transparent when it comes to the service that it gets from the bank. Then on your general question, I remind you that if you look at the third and the fourth quarter of a year ago if you look at it now, we are basically clocking in – well at the same level or better than what we saw in Q3. With the other element, I remind you that the fourth quarter of a year ago was not necessarily a very strong quarter. So I let you decide what that gives, but it could be that we remain into the overall views. So, that will be my three answers, Pierre.

Pierre Chedeville: Yes, thank you.

Operator: Thank you. And our last question from Mr. Alex Koagne from Oddo Securities. Sir, please go ahead.

Alex Koagne: Yes, hi, Lars. Two questions from my side as well. The first one is more general question, for the time being, do you see any kind of impact of trade talks on your business? That’s the first question. And the second question is considering the kind of the globalization we are having with the protectionism increasing, do you think that going forward do we need higher capital buffer to do your business because of the volatility and so on? Thank you very much.

Lars Machenil: Alex, first on the trade, listen, we are a European bank, so we are not necessarily the best to have that view on what is happening on that.

If you look at our overall outstanding loan evolution, with 4%, it basically confirms that these things are progressing well. Moreover in Asia if you look at what China – how China is opening up everyday more, I think that is for the moment what we observe on this. And when it comes to your second question, on more capital, maybe what I suppose what you mean is on emerging markets and the likes. I don’t know if there will be a kind of emerging markets concern or emerging market capital requirement. What we do see today is that there are some idiosyncratic issues that some countries have and that they will have to probably address and that’s basically it.

So that will be my two answers, Alex.

Alex Koagne: Thank you very much.

Operator: Thank you. We don’t have any more questions. Back to you for the conclusion, sir.

Lars Machenil: Thank you. So thank you for your attention. And as you know, we have basically four points that we wanted to address. We wanted to remind you of our ambitious policy of engagement in society. You have seen our active rollout of new customer experiences and implementation of the digital transformation and then a good development of business activity and to top it off, an increase in net income and an increase in the common equity Tier 1 clocking in at 11.7%.

So with this, I thank you and have a good day. Bye.