WEBVTT - BNP Paribas CFO Lars Machenil Talks Equity Trading

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Let's go to Paris now in terms of the earning story,

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<v Speaker 2>we are going to talk about BNP Poarabos earnings and

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<v Speaker 2>we're joined by the CFO Lars Match and Eel Lars.

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<v Speaker 2>Very good morning to you. Let's get straight to the

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<v Speaker 2>positives here. First quarter equity and prime services revenue up

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<v Speaker 2>by forty two percent year on year. That's much higher

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<v Speaker 2>than the estimates. That's much higher than the average achieved

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<v Speaker 2>on Wall Street. But of course the question is how

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<v Speaker 2>sustainable is that kind of performance?

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<v Speaker 3>Yeah, good morning.

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<v Speaker 1>Indeed, well, if I take it just a step back,

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<v Speaker 1>if you look at the total bank, we clocked in

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<v Speaker 1>three billion of net profit, and indeed with the record

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<v Speaker 1>quarter for CAB.

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<v Speaker 3>If you look at CAB in particularly, we have.

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<v Speaker 1>Three divisions right, so markets, Global banking, security Services, and

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<v Speaker 1>they've all been performing well. And if you zoom in

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<v Speaker 1>on your question if we talk, if we talk about

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<v Speaker 1>global markets, do remember that.

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<v Speaker 3>We have been completely changing our setup.

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<v Speaker 1>We have the full wid of products and of services,

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<v Speaker 1>and therefore we enter into growth.

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<v Speaker 3>By taking market share.

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<v Speaker 1>Again this quarter, there was a very strong additional volatility,

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<v Speaker 1>so we stepped up even in those results and we

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<v Speaker 1>have a record quarter. But nevertheless, I mean we are

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<v Speaker 1>on a strong growth intrinsic growth, which was somewhat boosted

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<v Speaker 1>this quarter given the exceptional volatility in the inqubon.

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<v Speaker 2>Okay, so the exceptional volatility of course help, but you

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<v Speaker 2>sense you're taking market share and so maybe some sense

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<v Speaker 2>of sustainability to strong performance. What about the cost side

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<v Speaker 2>of the business then, last, because at the net level,

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<v Speaker 2>the numbers look almost in line with expectation, but some

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<v Speaker 2>people are citing that cost space and just I'm wondering

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<v Speaker 2>what it is that's that's going up here after year

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<v Speaker 2>that you're having to pay out for.

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<v Speaker 1>Listen, if you look if I take it back again

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<v Speaker 1>at the BNP parabel level, Indeed, if you look at it,

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<v Speaker 1>you see costs going up full like four percent.

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<v Speaker 3>So this is a number that is kind of high.

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<v Speaker 1>But then if you look through it, there are elements

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<v Speaker 1>which is basically the forex the fox lifted it for

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<v Speaker 1>half a basis point. Then there is also inflation that

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<v Speaker 1>lifted it for half a basis point, and then also

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<v Speaker 1>the variable costs that basically come with the strong results

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<v Speaker 1>of the first quarter. So if you look at it, intrinsically,

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<v Speaker 1>cost evolution is two point five percent in the first

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<v Speaker 1>quarter and that is what we aim for for the

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<v Speaker 1>rest of the year. And that two point five percent

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<v Speaker 1>growth is marginal costs, so it comes with costs to

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<v Speaker 1>accompany the revenues. So we feel intrinsically that it is

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<v Speaker 1>under control. There are some exceptional elements, call it noise

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<v Speaker 1>in the first quarter, but we stick to for the

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<v Speaker 1>rest of the year to two point five percent marginal

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<v Speaker 1>cost growth.

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<v Speaker 4>Last, good morning, it's guy. Can I just take you

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<v Speaker 4>back to the Market's division. Is the Market's division running

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<v Speaker 4>at maximum risk at the moment?

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<v Speaker 1>Oh, actually, we consider it runs at low risk.

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<v Speaker 3>What I mean by that and we talk about.

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<v Speaker 1>Being able to step up market share, It basically means

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<v Speaker 1>that we keep on doing exactly the same underwriting the

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<v Speaker 1>same kind of business that we do, but we take

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<v Speaker 1>higher market shares. So if you look at the evolution

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<v Speaker 1>of our top line in cib and if you look

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<v Speaker 1>at the metric whatever it is, we take the VAR,

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<v Speaker 1>which is a metric for the risk that you take.

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<v Speaker 1>The VAR is basically stable, whereas our top line grows.

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<v Speaker 1>So we really stick to underwriting the same kind of business.

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<v Speaker 3>But in the positioning we take market.

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<v Speaker 4>Sharees, if volatility comes down, could you take more risk?

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<v Speaker 3>Listen.

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<v Speaker 1>We are really confident that the activity that we do,

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<v Speaker 1>we consider it flow and that flow basically means companies

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<v Speaker 1>and institutionals they typically need currencies they need for X,

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<v Speaker 1>whatever it is. So there is a good play. And

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<v Speaker 1>if you look at well, what typically the outlookcess this

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<v Speaker 1>business grows on a year two year basis and we

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<v Speaker 1>will continue to grow and to take market share.

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<v Speaker 3>Again, we do this with the same cost of risk.

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<v Speaker 1>Listen, we call our division CIB Corporate and Institutional banking.

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<v Speaker 1>We don't call it investment banking. So we stick to

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<v Speaker 1>our on the writing principles.

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<v Speaker 4>If volatility comes down and you're making less money on

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<v Speaker 4>that side, does deal making go up? If we go

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<v Speaker 4>into a more certain environment, will there be more deal

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<v Speaker 4>making and less money coming out of the market division.

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<v Speaker 4>Those two kind of compensate for each other in a

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<v Speaker 4>more certain environment.

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<v Speaker 3>Now that is typically what we do.

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<v Speaker 1>You know, what we stand for is we have diversified

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<v Speaker 1>but complementary kind of activities.

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<v Speaker 3>It's true like if you look.

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<v Speaker 1>At our results today, the markets activities were strong given

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<v Speaker 1>the increased volatility in the quarter.

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<v Speaker 3>However, if you then look.

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<v Speaker 1>At our global banking activities and then you look at

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<v Speaker 1>the demand for kind of mergers and whatever, that was

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<v Speaker 1>lower given the uncertainty. So when that uncertainty will taper off, yes, indeed,

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<v Speaker 1>the markets activities will probably normalize. However, there is a

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<v Speaker 1>likelihood that the demand for whatever it is investment banking,

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<v Speaker 1>MNA activities will step up. And that's I cannot say

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<v Speaker 1>it's every quarter like that, but that's if you look

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<v Speaker 1>at the trend of the last couple of years, that's

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<v Speaker 1>how it has been.

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<v Speaker 5>Good morning, Lasi's Lizzie here. Can I ask you broadly

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<v Speaker 5>how you see this trade war and the general geopolitical

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<v Speaker 5>uncertainty impacting economic growth and inflation as we go ahead.

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<v Speaker 1>Yeah, there's several things to that. I mean, it's probably

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<v Speaker 1>a tad too early to say something. If you look

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<v Speaker 1>at our first quarter results, you don't see anything going forward.

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<v Speaker 1>I basically for the moment, I don't see many things

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<v Speaker 1>moving why. On one hand, yes, with whatever the tariffs

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<v Speaker 1>will come, some transatlantic volumes.

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<v Speaker 3>Of trade will go down.

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<v Speaker 1>However, if you look at Europe, which is putting all

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<v Speaker 1>sales to reinvest, look at what Europe is saying, look

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<v Speaker 1>at what Germany is saying, look at what several countries

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<v Speaker 1>are saying, And so we anticipate that those investments will

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<v Speaker 1>basically compensate.

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<v Speaker 3>Of course, tariffs will come.

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<v Speaker 1>Immediately, whereas those investments will take a bit of time

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<v Speaker 1>to come, but normally that should happen. I'll give you

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<v Speaker 1>another thing that I look at on your cost of

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<v Speaker 1>risk as a front leading indicator for me to see

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<v Speaker 1>if companies run into trouble, I basically look at their liquidity.

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<v Speaker 1>So if I look at cib if I take the corporates,

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<v Speaker 1>if the corporates all of a sudden come brushing in

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<v Speaker 1>with liquidity demands, that is kind of a hint that

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<v Speaker 1>something is going I don't see that. At the same time,

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<v Speaker 1>if you go to the headphones, if the headphones all

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<v Speaker 1>of a sudden have problems putting up the initial margins,

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<v Speaker 1>that's also an indicator.

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<v Speaker 3>I don't see that.

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<v Speaker 1>So I don't see the corporates coming forth funding needs,

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<v Speaker 1>and I don't see the funds having issues with putting

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<v Speaker 1>the initial margins out. So from that point of view,

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<v Speaker 1>what I'm just saying that things could level out at

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<v Speaker 1>this stage with all the indicators I have, and that's

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<v Speaker 1>what I see.

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<v Speaker 5>But I mean, you are especially exposed among the European

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<v Speaker 5>banks to this trade. What you've got a high proportion

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<v Speaker 5>of loans and advances to manufacturing the most of your rivals.

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<v Speaker 5>Does part of that first quarter provision already include those risks?

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<v Speaker 5>Are you're going to have to increase it if the

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<v Speaker 5>trade will kind of intensifies between the US and Europe.

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<v Speaker 3>Listen, let me clarify.

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<v Speaker 1>If you look at our exposure and you look at

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<v Speaker 1>the sectors and then you take the sectors that could

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<v Speaker 1>be impacted by those stairs, for US, that represents quote

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<v Speaker 1>unquote only ten percent of our exposure.

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<v Speaker 3>So from that point of view.

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<v Speaker 1>I feel comfortable that Europe has compensating effects. And then

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<v Speaker 1>for US, we are so diversified that we are not

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<v Speaker 1>exposed in any material way to that kind of trading

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<v Speaker 1>related activities.

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<v Speaker 4>That's great to catch up, always a pleasure. Thanks for

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<v Speaker 4>updating us BNP's CFO Las Machel, BNP Powerabar