BNP Paribas's CEO Presents At Morgan Stanley Conference (Transcript)

BNP Paribas (BNPQY.PK)

Morgan Stanley Conference Call

March 28, 2012 04:30 pm ET

Executives

Jean-Laurent Bonnafé - CEO

Analysts

Presentation

Jean-Laurent Bonnafé

Good morning ladies and gentlemen. Well I have told today's presentation swiftly adapting to the changing environment. In fact over the next half hour, I would like to talk to you about, first the way BNP Paribas has adapted through swift and resolute actions to the turbulence seen in the second part of 2011. Secondly, the resilient performance shown by our different business lines leveraging on our traditional strengths such as profitability and risk management and lastly what we are working on for 2012.

Changing world, so starting with the first part. In Q3 and Q4 we were faced with a concentration of factors of uncertainty. These can be summed up as first, the sovereign debt crisis especially on peripheral eurozone countries. Second, tension on liquidity and funding especially in US dollars and third, solvency requirements that were suddenly increased and brought forward by the EBA. BNP Paribas responded to these challenges by immediately implementing a series of specific actions.

On sovereign debt, first of all Greece. We led negotiations on the PSI and increased the level of provisions to 75% by year end 2011. Following the exchange of (Inaudible), the 1 billion you see as residual exposure today has actually been reduced by €0.6 billion, corresponding to the amount of [EFSI] bonds received.

In terms of the global sovereign portfolio, the anticipation of mark-to-market rules meant that the volatility on certain country’s debt could potentially impact our solvency ratios. With that fall, downside of the overall portfolio as you can see on the graph, both in the eurozone and in the rest of the world by 29% in six months.

Our aim is to further reduce on an opportunistic basis, both the overall exposure and the average maturity. So this is for sovereign debt.

Liquidity and funding. The liquidity crisis mainly centered on US dollar funding as the [confident] crisis on Europe debt led US money market funds to sharply reduce the exposure to European NIMs. Here again, we acted decisively reducing trading assets and fixed income securities, as well as the client loan booked especially in CIB. The US reduction plan was largely achieved by year-end 2011, well ahead of schedule. In fact, we reduced our funding needs in CIB by $57 billion versus a target of $60 billion initially given for the end of 2012.

We have now increased these target to $65 billion. And as you can see from the slide, in just six months, we have managed to create a surplus of $19 billion in our mid long-term funding. A similar picture emerge, if you look at the old cash balance sheet. As you can see the overall surplus we have in terms of mid-long term funding amounts to €31 billion at the end of 2011. And as you have already noted from the cash balance sheet we’ve maintained a high level of liquid reserves, those immediately available come to €160 billion accounting to 85% of short-term wholesale funding.

On top of that, the liquidity buffers increased by €100 billion of additional assets such as reports of deposits with clearing system which are incurred only for very short periods. Having completed our initial program by July we increased it by €8 billion. This is the second part of the mid long-term funding. We thus continued to issue for the crisis with an average maturity in excess of 5 years at 89 basis points of mid swap still quite competitive and we raise these additional loans through private placement and through our retail network.

If we move to solvency now, we’ve presented to the market shortly after last summer a deleveraging plan structured to improve our solvency ratio by 100 basis point by year end 2012. It centered on first reducing risk weighted asset in CIB through more selective origination, asset sales and reduction of specific capital market activities. Second, adapting the business model in retail banking specifically downsizing the mortgage specialized business in personal finance and exiting from leasing non core perimeters and subscale countries.

And lastly rationalizing our investments portfolio. As of year end 2011 we have already achieved one third of the plan of which half of the CIB target. We’ll see later on the current status of these adaptation plans. The combined benefit of deleveraging and profitability led to a significant improvement of our solvency ratio was arrived at 10.1% under Basel 2 and 9.6% under Basel 2.5. After accounting for the sovereign buffer requested by EBA, BNP Paribas achieved an EBA compliant ratio of 9.2% thus exceeding the 9% EBA target six months in advance.

And to conclude this part, you can see that the deleveraging we've implemented in 2011 which continues the trends seen over the previous three years has lowered our level of ratio to 21 times, below the average of our main European competitors for the first time. This is testimony to the significant work done by BNP Paribas to reduce its balance sheet while increasing its solvency and we see the strength continuing for BNP Paribas in 2012.

Now let's have a look at the result achieved by the different business lines. In 2011, we showed good resilience in terms of revenues in all businesses except CIB. Revenues for retail banking reached €24 billion marking an increase of 1.5% with all our retail businesses achieving a positive performance. Investment solutions also showed high revenues which reached 6.3 billion, up 2.8% on 2010, despite an increasingly difficult market environment in the second half of the year.

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