WEBVTT -  BNP Paribas CFO Machenil Talks Revenue, Risks, Geopolitics

0:00:02.520 --> 0:00:07.040
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:07.800 --> 0:00:10.480
<v Speaker 2>So let's talk about our next guest. BAF Parabart has

0:00:10.520 --> 0:00:13.239
<v Speaker 2>reported better than expected revenue and profit for the second quarter.

0:00:13.960 --> 0:00:19.720
<v Speaker 2>It's stock traders, it's equity traders, absolutely smashing expectations. Joining

0:00:19.760 --> 0:00:22.240
<v Speaker 2>us now is last match. Neil, the chief financial Officer

0:00:22.280 --> 0:00:25.520
<v Speaker 2>of the CFO at BNP Parabart, lars always a pleasure.

0:00:26.800 --> 0:00:28.080
<v Speaker 2>I feel like I'm going to ask you the same

0:00:28.160 --> 0:00:30.280
<v Speaker 2>question that I asked you last time around, which is

0:00:31.160 --> 0:00:34.960
<v Speaker 2>is BNP just an equity story? Now it is the

0:00:35.000 --> 0:00:37.040
<v Speaker 2>rest of the bank performing as you would like it

0:00:37.080 --> 0:00:39.959
<v Speaker 2>to or are the equity guys just doing what they

0:00:40.040 --> 0:00:43.400
<v Speaker 2>need to do to keep this bank delivering these kinds

0:00:43.400 --> 0:00:45.480
<v Speaker 2>of amazing numbers that you're delivering right now.

0:00:47.920 --> 0:00:51.280
<v Speaker 3>Well, God, if you look at the results, it's basically

0:00:51.440 --> 0:00:55.680
<v Speaker 3>all engines are firing on all are basically firing. If

0:00:55.720 --> 0:00:58.120
<v Speaker 3>you look at it, I mean all the grout, all

0:00:58.160 --> 0:01:00.880
<v Speaker 3>of the lines are basically double digit. So top line

0:01:00.920 --> 0:01:03.360
<v Speaker 3>is up to a haelve percent growth. Operate incomes so

0:01:03.440 --> 0:01:06.560
<v Speaker 3>revenues minus cost minus cost of risk up sixteen percent,

0:01:06.959 --> 0:01:10.160
<v Speaker 3>bottom line given a capital gain up thirty three percent,

0:01:10.440 --> 0:01:13.840
<v Speaker 3>And again it is cib which is doing fine, but

0:01:13.880 --> 0:01:16.480
<v Speaker 3>it's also the retail activities which are doing fine, and

0:01:16.560 --> 0:01:20.480
<v Speaker 3>also the IPS or the asset management and insurance activities,

0:01:20.520 --> 0:01:24.000
<v Speaker 3>which are doing very fine. And moreover, our common equity

0:01:24.000 --> 0:01:26.839
<v Speaker 3>T one is solid thirteen percent. We are there eighteen

0:01:26.840 --> 0:01:30.360
<v Speaker 3>months ahead of business, so we are really firing on

0:01:30.400 --> 0:01:34.080
<v Speaker 3>all cylinders and ready to continue to support the economy.

0:01:34.319 --> 0:01:37.720
<v Speaker 3>So we are not that one trick pony. It is

0:01:37.800 --> 0:01:41.240
<v Speaker 3>really the three divisions that are working collectively and that

0:01:41.360 --> 0:01:43.240
<v Speaker 3>are boosting the results.

0:01:44.600 --> 0:01:48.240
<v Speaker 2>Okay, let's just kind of absorb all of that, but

0:01:48.400 --> 0:01:51.360
<v Speaker 2>talk a little bit about what is happening in equities.

0:01:51.520 --> 0:01:55.560
<v Speaker 2>The equity numbers are strong and a well ahead of expectations.

0:01:55.640 --> 0:01:58.760
<v Speaker 2>QY to equity and prime services revenue one point four one,

0:01:59.040 --> 0:02:02.800
<v Speaker 2>that's plus f forty three percent year on year. Can

0:02:02.800 --> 0:02:04.160
<v Speaker 2>you just give me a bit of detail that I'm

0:02:04.160 --> 0:02:07.120
<v Speaker 2>curious as to how this breaks down equity and prime

0:02:07.200 --> 0:02:10.640
<v Speaker 2>services lars. What are you getting on the prime services

0:02:10.680 --> 0:02:13.160
<v Speaker 2>side of things? What are hedge funds doing? Where are

0:02:13.200 --> 0:02:16.120
<v Speaker 2>you seeing the expansion when it comes to the hedge funds.

0:02:16.120 --> 0:02:18.400
<v Speaker 2>Some of the Wall Street banks like Gold and Sanks,

0:02:18.400 --> 0:02:22.200
<v Speaker 2>we're talking about really strong demand for leverage coming out

0:02:22.240 --> 0:02:26.200
<v Speaker 2>of Asia. Where are you seeing the prime services business

0:02:26.240 --> 0:02:28.040
<v Speaker 2>doing well and how does it compare with the rest

0:02:28.080 --> 0:02:30.760
<v Speaker 2>of the equities business within that portfolio.

0:02:32.919 --> 0:02:35.880
<v Speaker 3>Well, if you look our equity and prime services, we

0:02:35.960 --> 0:02:37.720
<v Speaker 3>are one of the few banks in Europe that have

0:02:37.800 --> 0:02:40.960
<v Speaker 3>the full scale, so we have cash, equities, derivatives and

0:02:41.000 --> 0:02:43.800
<v Speaker 3>prime brokers, as you said, and that basically having a

0:02:43.840 --> 0:02:45.680
<v Speaker 3>reach all around the world.

0:02:45.840 --> 0:02:46.720
<v Speaker 1>And if you look at.

0:02:46.600 --> 0:02:50.360
<v Speaker 3>The demand, the demand, probably related to the supercycle that

0:02:50.400 --> 0:02:54.200
<v Speaker 3>we see, has been stronger both in the US and

0:02:54.960 --> 0:02:57.919
<v Speaker 3>in Asia, but it has been strong overall. And as

0:02:57.960 --> 0:03:00.440
<v Speaker 3>we are present in all of those domains and we

0:03:00.600 --> 0:03:03.359
<v Speaker 3>have the capital, the liquidity, the leverage to do so,

0:03:03.680 --> 0:03:06.440
<v Speaker 3>we are there to accompany that demand. And so that's

0:03:06.480 --> 0:03:08.760
<v Speaker 3>what we've been seeing and so we're very pleased to

0:03:08.800 --> 0:03:11.600
<v Speaker 3>have that complete setup and to be able to follow

0:03:12.200 --> 0:03:13.600
<v Speaker 3>our clients all around the world.

0:03:13.639 --> 0:03:19.120
<v Speaker 4>Actually last good morning. So that's the revenue side of things.

0:03:19.200 --> 0:03:22.079
<v Speaker 4>What you're doing on provisions. One line in our report

0:03:22.120 --> 0:03:24.600
<v Speaker 4>this morning suggests that maybe your provisions have been on

0:03:24.600 --> 0:03:27.840
<v Speaker 4>the rise, maybe higher than had been estimated, and citing

0:03:27.840 --> 0:03:31.919
<v Speaker 4>geopolitical risk, What is it that you are increasingly provisioning for.

0:03:33.919 --> 0:03:37.400
<v Speaker 3>Yeah, listen, if I express the cost of risk as

0:03:37.920 --> 0:03:40.720
<v Speaker 3>what fraction of my loans do I impair? So I

0:03:40.760 --> 0:03:43.960
<v Speaker 3>express this in basis points, you have fraction of percentage.

0:03:44.280 --> 0:03:47.560
<v Speaker 3>We clocked in this quarter at thirty nine basis points

0:03:47.880 --> 0:03:50.880
<v Speaker 3>compared to thirty eight a year ago. But if you

0:03:50.880 --> 0:03:53.240
<v Speaker 3>look at the cost of risk in our divisions, it

0:03:53.320 --> 0:03:56.839
<v Speaker 3>is basically stable. So intrinsically with whatever that has been

0:03:56.880 --> 0:03:59.960
<v Speaker 3>happening on the divisions, there is no pickup.

0:04:00.080 --> 0:04:00.680
<v Speaker 1>It is stable.

0:04:00.920 --> 0:04:03.960
<v Speaker 3>So what is that additional basis point coming from. Is

0:04:04.000 --> 0:04:06.800
<v Speaker 3>because we took a prudence stand saying there is some

0:04:06.960 --> 0:04:10.960
<v Speaker 3>geopolitical uncertainty and that allows us to take a generic

0:04:11.040 --> 0:04:12.720
<v Speaker 3>provision for that uncertainty.

0:04:12.920 --> 0:04:14.480
<v Speaker 1>So that is a provision that we took.

0:04:14.760 --> 0:04:18.200
<v Speaker 3>If at some point in time the geopolitical situation would

0:04:18.200 --> 0:04:20.800
<v Speaker 3>deteriorate and there would be higher cost of risk, we

0:04:20.839 --> 0:04:25.200
<v Speaker 3>would use this reserve that we have created this quarter.

0:04:27.600 --> 0:04:29.719
<v Speaker 4>And las, can I ask you about what's happening with

0:04:29.839 --> 0:04:33.880
<v Speaker 4>the technology build out, the frenzy around AI and data

0:04:33.920 --> 0:04:38.160
<v Speaker 4>center rollout, and how we see that evidence in the

0:04:38.240 --> 0:04:40.440
<v Speaker 4>business that BNP pow about does We heard from somebody

0:04:40.480 --> 0:04:43.120
<v Speaker 4>at Barclay's yesterday who was talking about a golden age

0:04:43.279 --> 0:04:45.840
<v Speaker 4>for technology right now, so many trends happening at the

0:04:45.880 --> 0:04:48.920
<v Speaker 4>same time, and so many companies wanting to tap markets

0:04:49.000 --> 0:04:51.120
<v Speaker 4>as a result. Is this something that you think is

0:04:51.160 --> 0:04:55.679
<v Speaker 4>happening outside of the European banking or is European banking

0:04:55.760 --> 0:04:57.760
<v Speaker 4>intrinsic to these developments.

0:05:00.360 --> 0:05:02.720
<v Speaker 3>You see demands a bit all over the world. If

0:05:02.720 --> 0:05:05.200
<v Speaker 3>you go into Asia, the US, it is rather than

0:05:05.240 --> 0:05:08.200
<v Speaker 3>the AI supercycle. If you go in Europe, there are

0:05:08.200 --> 0:05:12.720
<v Speaker 3>also structural demands infrastructure, energy, So there are a lot

0:05:12.760 --> 0:05:14.760
<v Speaker 3>of investments that are happening, and so we see that

0:05:14.800 --> 0:05:18.800
<v Speaker 3>pickup and again with what we have both in the

0:05:18.800 --> 0:05:22.119
<v Speaker 3>global markets but also in the financing activities, and given

0:05:22.160 --> 0:05:24.960
<v Speaker 3>our capital position, we are there to support.

0:05:25.279 --> 0:05:27.320
<v Speaker 1>The One thing is, you know, we are.

0:05:27.279 --> 0:05:29.800
<v Speaker 3>A bank, We are prudent, so we have to be

0:05:30.560 --> 0:05:32.440
<v Speaker 3>We see a lot of demand, but we have to

0:05:32.480 --> 0:05:36.559
<v Speaker 3>be careful and to avoid that we would underwrite things

0:05:36.960 --> 0:05:38.800
<v Speaker 3>that would make us think of what we saw back

0:05:38.839 --> 0:05:41.320
<v Speaker 3>in two thousand and two. So that's a bitt So, yes,

0:05:41.360 --> 0:05:44.280
<v Speaker 3>we see demand, Yes we're ready to support it, but

0:05:44.360 --> 0:05:47.480
<v Speaker 3>we keep our eyes open as we always do.

0:05:47.520 --> 0:05:48.839
<v Speaker 2>You seem to be saying that you think there's a

0:05:48.920 --> 0:05:51.800
<v Speaker 2>risk here, how bubble like do you think the market

0:05:51.880 --> 0:05:53.240
<v Speaker 2>is right now? Therefore around this.

0:05:53.279 --> 0:05:57.080
<v Speaker 3>Space listen, I'm not going to qualify it as a bubble,

0:05:57.080 --> 0:06:00.760
<v Speaker 3>but I'm telling you we are continuing to look very

0:06:00.800 --> 0:06:03.760
<v Speaker 3>careful what it is to make sure that there is

0:06:03.800 --> 0:06:07.080
<v Speaker 3>a difference between really infrastructure kind of things and things

0:06:07.120 --> 0:06:10.200
<v Speaker 3>which are maybe not as under build. So I'm not

0:06:10.240 --> 0:06:14.640
<v Speaker 3>saying there is a bubble, but we're particularly careful to

0:06:15.320 --> 0:06:15.880
<v Speaker 3>avoid it.

0:06:17.200 --> 0:06:19.880
<v Speaker 2>Just follow up on that. When you spend money, I'm

0:06:19.880 --> 0:06:21.640
<v Speaker 2>going to ask the same question I asked the CFO

0:06:21.800 --> 0:06:25.880
<v Speaker 2>of Santandre yesterday. What's your rate of return when you

0:06:25.960 --> 0:06:29.440
<v Speaker 2>invest in AI at the moment, So you invest a

0:06:29.520 --> 0:06:32.560
<v Speaker 2>euro in AI, what's your rate of return that you're

0:06:32.640 --> 0:06:34.479
<v Speaker 2>seeing at the bank right now.

0:06:34.920 --> 0:06:38.039
<v Speaker 3>Yes, I'll put it the other way around is to

0:06:38.120 --> 0:06:40.839
<v Speaker 3>be very fair again, these kinds of things, if you

0:06:40.920 --> 0:06:44.760
<v Speaker 3>implement AI. I'm exaggerating, but imagine you give every employee

0:06:44.760 --> 0:06:46.719
<v Speaker 3>a tool that is going to cost a lot of

0:06:46.760 --> 0:06:49.600
<v Speaker 3>money and that's not necessarily going to realize in any

0:06:49.600 --> 0:06:50.720
<v Speaker 3>bottom line improvement.

0:06:51.000 --> 0:06:53.000
<v Speaker 1>So the way we do it, we really focus on.

0:06:52.960 --> 0:06:55.440
<v Speaker 3>All the investments that we do that they do have

0:06:55.600 --> 0:06:58.280
<v Speaker 3>the ROI c that we go for so more than

0:06:58.320 --> 0:07:02.600
<v Speaker 3>what we typically have fifteen percent after tax. We also

0:07:02.640 --> 0:07:04.919
<v Speaker 3>want to make sure that it is focused on cost

0:07:04.960 --> 0:07:08.760
<v Speaker 3>capturing and on cyber so we really look forward, so

0:07:08.800 --> 0:07:10.640
<v Speaker 3>we're not handing our tools to everyone.

0:07:10.880 --> 0:07:12.560
<v Speaker 1>We're really taking end to end.

0:07:12.480 --> 0:07:16.400
<v Speaker 3>Processes see where it can be plugged in and how

0:07:16.480 --> 0:07:17.760
<v Speaker 3>it can deliver the savings.

0:07:18.720 --> 0:07:20.520
<v Speaker 4>Last, I don't need to tell you that we're heading

0:07:20.560 --> 0:07:23.240
<v Speaker 4>towards a French election. Of course, when you look at

0:07:23.280 --> 0:07:26.920
<v Speaker 4>the polling, are you preparing the business for any kind

0:07:26.960 --> 0:07:30.840
<v Speaker 4>of particular outcome? Are you concerned about European cohesion on

0:07:30.880 --> 0:07:32.960
<v Speaker 4>the other side of the election. Are you concerned about

0:07:33.080 --> 0:07:36.200
<v Speaker 4>higher French bond market spreads on the other side of

0:07:36.200 --> 0:07:37.720
<v Speaker 4>the election? How do you prepare the business?

0:07:38.920 --> 0:07:41.640
<v Speaker 3>The point of attention if I talk to corporates and

0:07:41.840 --> 0:07:45.240
<v Speaker 3>at this stage they picked up business, so they were

0:07:45.280 --> 0:07:47.240
<v Speaker 3>a bit wait and see with what was happening, and

0:07:47.320 --> 0:07:49.560
<v Speaker 3>at least they picked up. If you look at June,

0:07:49.600 --> 0:07:52.480
<v Speaker 3>you saw business picking up. So from that point of you,

0:07:52.600 --> 0:07:55.960
<v Speaker 3>it's fine. If I talk to our individual clients, you

0:07:56.120 --> 0:07:59.000
<v Speaker 3>saw our result in French retail banking, they are doing fine.

0:07:59.160 --> 0:08:01.520
<v Speaker 3>So the point of attention if I may say, is

0:08:01.520 --> 0:08:04.760
<v Speaker 3>the French Republic, Yeah, what will happen? What will happen

0:08:04.800 --> 0:08:07.160
<v Speaker 3>with the financing cost centralize? So that is a bit

0:08:07.200 --> 0:08:10.960
<v Speaker 3>the point of attention, but intrinsically for us with respect

0:08:10.960 --> 0:08:11.760
<v Speaker 3>to what we see.

0:08:11.640 --> 0:08:12.400
<v Speaker 1>In the French clients.

0:08:12.400 --> 0:08:15.000
<v Speaker 3>And let's not forget we are a bank which is

0:08:15.320 --> 0:08:18.000
<v Speaker 3>Pan European. Yeah, I know we have twice Paris in

0:08:18.040 --> 0:08:20.960
<v Speaker 3>our name, but we are mainly a Pan European bank.

0:08:21.200 --> 0:08:22.840
<v Speaker 3>So from that point of view, on the day to

0:08:22.920 --> 0:08:26.600
<v Speaker 3>day business, we see evolutions which are fine, but yes,

0:08:26.680 --> 0:08:29.680
<v Speaker 3>there will be some uncertainty around the republic, around the

0:08:29.720 --> 0:08:32.840
<v Speaker 3>financing around it. So that's what we will have probably

0:08:32.920 --> 0:08:33.760
<v Speaker 3>until next summer.

0:08:34.360 --> 0:08:36.920
<v Speaker 2>Yep, we're all going to watch with interest. I have

0:08:37.000 --> 0:08:39.760
<v Speaker 2>to say, last it's a pleasure, thanks for the time

0:08:39.760 --> 0:08:42.080
<v Speaker 2>this morning part about CFO Las Mastion Neil