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Q4 2011 Earnings Call

February 15, 2012 09:30 am ET

Executives

Jean-Laurent Bonnafé – Director and Chief Executive Officer

Georges Chodron de Courcel – Chief Operating Officer

Philippe Bordenave – Chief Operating Officer

François Villeroy de Galhau – Chief Operating Officer

Analyst

Thibault Nardin – Morgan Stanley

Kinner Lakhani – Citigroup

Andrew Lim – Espirito Santo

Jean-François Neuez – Goldman Sachs

Anke Reingen – RBC

Robin Down – HSBC

Jeremy Sigee – Barclays Capital

Sébastien Lemaire – Société Générale

Omar Fall – UBS

Presentation

Operator

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Ladies and gentlemen welcome to the presentation of BNP Paribas Consolidated Results 2011. Jean-Laurent Bonnafé, CEO of the group who will present the results along with COOs, Chief Operating Officers, Georges de Courcel, Phili Bordenave and François Villeroy de Galhau. A Q&A session will conclude the presentation with some of the questions in the room and then we will take questions from the conference call. Therefore I'm asking you to turn off your phone because the presentation is webcast live both on Internet and over the phone.

Thank you very much and then now leaving the floor to Jean-Laurent Bonnafé.

Jean-Laurent Bonnafé

Thank you, good afternoon. So, I will start with an overview of the key figures for the, our Group in 2011. 2011 has been characterized by a top profit environment, the Eurozone crisis and tensions on liquidity. In this context BNP Paribas has taken swift and decisive actions to adapt to this changing environment, already reaping initial benefits by year end. If you should look at numbers, we achieved reduced revenues above €42 billion, minus 3.4% compared to 2010. The net of income is €6,050 million, is a drop of 22.9% compared to 2010 and we posted a return on equity of 8.8%, minus 3.5 point as compared to 2010.

In terms of performance per share, the net book value per share improved to €58.2, that is 5% increase compared to 2010. Again I would say nice growth looking at the general circumstances of 2011 and the dividend payment should be €1.2 per share corresponding to a pay-out of 25%. We significantly strengthen our solvency, shown by the 90 basis points increase of our common equity Tier 1 ratio to 10.1% in the Basel 2 universe and this equates to 9.6% from the Basel 2.5.

Finally, we have taken actions to downsize the balance sheet as you know, and as shown by the 12% reduction in our cash balance sheet mostly achieved in the second half of the year.

Now if you move to, let's say what have been the three main issues in 2011. Well, first the exposure to the European sovereign debt, to that respect we provision our Greek debt exposure in the end to 75%. So this is in the last quarter in the range of €600 million on top of what we did before and we significantly reduced our sovereign exposure all over the year up by 28%.

In terms of market conditions, pension and liquidity and refinancing, well we have put an adaptation plan to reduce our net funding requirements in U.S. dollars reducing it by 24% and we have also increased our medium and long-term funding program from €25 billion to €53 billion and extended the average maturity to close to six years.

By year end our funding needs for customer’s activity were more than covered by several funding resources. This is at the global level of the group but also in the U.S. dollar universe. To address the increased solvency requirements by the EBA we deployed a deleveraging plan aiming at achieving our 9% common equity Tier 1 ratio under fully loaded Basel 3 by early 2013.

In fact by the end of 2011 we already reached the EBA target six months in advance. So this is the global overview of our group for 2011. I do believe this is a satisfactory set of results.

Philippe Bordenave will give you and will present you in a more detailed way both the liquidity, the financing and the results for last year. Then François will present you all our businesses for the domestic market area. We'll be back again for international retail banking and personal finance. Georges will cover investment solution and CIB. Then again, Philippe will explain you how to reach and how to get that 10% fully loaded Basel 3 target by year end. And then I will conclude the presentation.

So I'll be back in a minute.

Philippe Bordenave

Good afternoon. If you remember our day averaging plan and you'll remember that we had elaborated 80% of the plan. And now we have well, fully detained all the actions we want to take. And you see that the compliment is coming into CIB field mostly, essentially indeed. And so out of the total of 100 basis points, that is our target 57, more than half is coming from CIB. And those 100 basis points are the equivalent of 79 billion risk-weighted assets to be taken off.

We have achieved 32 basis points and 25 billion risk-rated assets [prediction] in equivalent in one half meaning that we are in line, but if in line with the target because it's first one, slightly below one-third is the first quarter, so quarter over starting. So we feel being quite in line with the target.

On the liquidity side, the result is quite spectacular in terms of U.S. dollar. As you can see we have reduced the assets denominated in U.S. dollar by $113 billion from $370 billion to $257 billion in six months. This of course occurring in the context where I would say short-term resources in dollars were dwindling very sharp as well on the liability side.

How did we achieve that, basically into two half? The first half was the sharp decline of dollar funding needs of CIB minus $57 billion due to the adaptation plan and so this, the half was a reduction of the structural needs of it basically. So, you can look at those 57 as being broadly as the same as 53 of funding needs of the customer activity reduction that you see at the bottom of the columns. 22 reduction in consumer loans and 31 reduction in trading assets. And so this is really structural, below the black line in the middle and the result was that BNP Paribas swung from a shortfall to a $90 billion surplus of total funding in dollars during this period.

And the other half another $57 billion came from a bit more easy, came from the $57 billion of U.S. dollars that used to be swept into other currencies at the time where we had a lot of excess dollar deposits especially from many market funds, that we were largely swapping into the currency than reusing in other currencies in the treasury business.

And of course one of very [abuse] move was to stop that kind of swaps destroying dollars and hence reducing the dollar effect by $57 billion. I would now stress that, well, despite the difficult context we have also continued to implement ongoing actions. First as the integration plan of BNP Paribas Fortis, we have already achieved €1.1 billion synergies which is a close from the target, very close to target that for the end of 2012 of €1.2 billion.

And so we have increased this final target by €300 million to €1.5 billion and this is going to be the last chapter of the integration in 2012. And it's also going to be helped by final €300 million of restructuring costs as well. So these results and this integration that was already successful, confirm our ability and know-how in terms of integration.

Moving to the [accounts] and sales now, first you’re seeing that there is a lot of exceptional items and we’re going to go through each of them because you have time to look at them. Just I would like to stress that if you make the total of the one-off revenues for the year its €35 million only pluses and minuses are broadly offsetting each other. And the same for the operating expenses, the net fees only plus €14 billion. So at the end the big run-off that is really not offset by anything is the big provision for Greece that came in three parts as you remember. So, €3.2 billion cost of risk and an additional €200 million through the associated companies.

Net of this one-off element, the downward trend already seen in 2010 was confirmed in 2011 in terms of cost of risk. Cost of risk shows 26 (Inaudible) net of ex-Greece. And the growth trend has been one of stabilization during the year, within the different quarters. And, while similar in most businesses of course, excluding Greece and so at these levels we can say that the cost of risk arrived at a level close to that of the average of the credit cycle that we have shown over the last 10 years or so, a bit more than 50 basis points.

The first quarter with all that was marked by, well, very challenging market conditions everybody knows that. And in spite of those difficult market conditions revenues showed a good resilience and contracted only by 6% to €9.7 billion, and cost were down by 3%. But again the real heat was on the cost of risk which increased by 30% to €1.5 billion due to the additional Greece provisions bringing them to 75%. And so with this provision the fourth quarter closed with a net profit of €765 million, half of the level of the first quarter of 2010.

Looking now at the annual accounts, total revenues amounted to €42 billion, down only 3% on 2010, with costs being reduced by 1.5%. Again, the cost of risk suffered from implement on Greek debt and the net profit is down by 22% at €6 billion.

The resilience [approaching] performance of our business in a very challenging environment in the second half enable us to achieve a return on equity of 8.8% and a return on tangible equity of 11.1% that is close to the cost of capital I think and I think this is encouraging for the future.

If we look at what went down in terms of revenues, to explain the minus (Inaudible) revenues, you see that revenues from retail banking were up, an increase of 1.5% with all our retail businesses achieving a positive performance. Investment solutions also showed higher revenues with €26.3 billion, up 2.8% in 2010 despite an increasingly difficult market environment in the second half of the year.

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