Q3 2019 Societe Generale SA Earnings Call
Paris Nov 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Societe Generale SA earnings conference call or presentation Wednesday, November 6, 2019 at 10:30:00am GMT
TEXT version of Transcript
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Corporate Participants
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* Diony Lebot
SG Corporate & Investment Banking - Deputy Head of The Coverage & Investment Banking Division and CEO for Western Europe
* Frédéric Oudéa
Société Générale Société anonyme - CEO & Director
* Jean-François Grégoire
Société Générale Société anonyme - Head of Global Markets Business Unit
* Philippe Aymerich
Société Générale Société anonyme - Deputy CEO
* Séverin Cabannes
Société Générale Société anonyme - Deputy CEO
* William Kadouch-Chassaing
Société Générale Société anonyme - Group CFO
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Conference Call Participants
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* Anke Reingen
RBC Capital Markets, Research Division - Analyst
* Azzurra Guelfi
Citigroup Inc, Research Division - VP
* Flora A. Benhakoun
Deutsche Bank AG, Research Division - Research Analyst
* Gregoire De Salins
Morgan Stanley, Research Division - Research Associate
* Guillaume Tiberghien
Exane BNP Paribas, Research Division - Head of the European Banks Team & Analyst of Banks
* Jean-Francois Neuez
Goldman Sachs Group Inc., Research Division - Executive Director
* Jonathan Matthew Balfour Clark
Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst
* Karl Jonathan Peace
Crédit Suisse AG, Research Division - MD
* Kirishanthan Vijayarajah
HSBC, Research Division - Analyst
* Lorraine Quoirez
UBS Investment Bank, Research Division - Director and Equity Analyst
* Omar Fall
Barclays Bank PLC, Research Division - Analyst
* Omar Fall
* Pierre Chedeville
CM-CIC Market Solutions, Research Division - Analyst
* Stefan-Michael Stalmann
Autonomous Research LLP - Partner, Swiss and French Banks
* Tarik EI Mejjad
BofA Merrill Lynch, Research Division - Equity Analyst
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Presentation
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Operator [1]
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Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer; and William Kadouch-Chassaing, Chief Financial Officer, will present the group's third quarter 2019 results.
Gentlemen, please go ahead.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [2]
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Good morning to all of you. Thanks for participating to this conference call on our third quarter and first 9 months results. As usual, I will just say a few words, then leave the floor to William, who will go through the figures more in detail. And of course, with our management team, we will then answer your questions.
So if I just go to the first slide, the key highlights. First of all, let me just say that overall, we have results exactly in line with our priorities and objectives. The first priority was obviously, and is, the capital. It was your concern beginning of this year. As you can see in this third quarter as well as the previous quarters, very strong progress. Our core Tier 1 ratio stands at 12.5%, up 45 basis points. That includes the provisioning of the 3 quarters of our cash dividend, EUR 2.2. So EUR 1.65 per share in cash is provisioned at the end of September.
This level of capital reflects a series of action and disciplines: First, strong discipline in the risk-weighted asset consumption. The deleveraging CIB, which is actually completed 9 months ahead of our initial time frame. Effectively, we have met the EUR 8 billion risk-weighted asset target that we have for the capital markets activities.
We have also -- and we will go through this more in detail with William. Effectively, we are getting the benefit of the securitization that we have put in place. William will explain more in detail. We also benefit from the closure of some of the disposals, which were announced around a little bit less than 10 basis points. This 12.5% is significantly above our MDA by 250 basis points. Let me just highlight that all the other ratios, in particular leverage ratio, total capital are up and strong as well as, of course, the fact that we are one of the very few banks already compliant with MREL.
Second, regarding the businesses. We are pursuing the adaptation of our businesses. We will go through that in detail. All retail activities and financial services are delivering very well and in line with our guidance.
And regarding the GBIS, I would like to highlight that the -- again, the restructuring is being implemented smoothly in line or even ahead of the time frame. And I'm very positive on the -- the effects this restructuring will have a more focused business model. At this stage, of course, we are losing the revenues of the activities, which we have decided to close, and we do not have yet the benefit of the savings which have been decided that we have effectively in practice secured. So things are going in the right direction. And going -- you will see that at the financing activities, the structured finance and the cash management activities are going very well.
The third element is that, of course, beyond. We are also benefiting from a solid risk profile. The cost of risk is stable at 26 basis points, 24 basis points for the first 9 months, well into our guidance. And strong balance sheet is also retracted by the level of NPL, which is going down. Let me just highlight that we have completed the funding program for this year.
If I just turn to the second slide, which is around climate action. I think this is something very important for banks in Europe. Let's face it, it is in Europe that this issue is more sensitive, more important, more than in U.S. or even Asia. But in Europe, it's very important, and I think it's an opportunity of business beyond fundamental responsibility issue.
I'm proud that we have been ranked #1 bank in the world by RobecoSAM regarding our environment strategy. And beyond, if I look at all the ESG criteria, very well in the top 10 -- top decile among European banks, #6 in Europe. This is an important element, it is a big amount of money that we commit, in particular to the transition, climate transition and energy transition with EUR 100 billion between 2016 and 2020. We are ahead of this objective, and we have recently renewed a new objective for 2019 and 2023 of EUR 120 billion, which is a mix of balance sheet financing and bonds.
Beyond, we are I think pioneer. It's part of the DNA of this company to innovate. Let me just highlight that we were the only bank to structure the sustainable development goal swap. It's a cross-currency swap, which was attached. It's obviously linked to the bond issue made by Enel, EUR 1.5 billion SDG bond issue very recently. And again, it's part of the innovation process.
Beyond, let me just highlight also at my equity research, we will, from 1st of January 2020, systematically include a significant element of ESG in the assessment of all the companies.
Now I will turn the floor to William to answer more in detail in our different activities.
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [3]
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Good morning, everyone. Thank you for joining this call. Let me start with a snapshot on the group performance. This quarter, as Frédéric highlighted, the group's underlying net income stands at EUR 855 million, and 9 months underlying net income stands at EUR 3.2 billion that translate into a Q3 return on tangible equity of 6.1%. Over the 9 months, the return on tangible equity is at 8.1%. This is consistent with stable business revenues, if you would adjust, and we will come back on that, to the impact of runoff activities as well as deleveraging in CIB and looking at the numbers at constant foreign exchange and perimeter, business revenues are down 0.5% only in Q3 relative to the same period of last year and are flat over 9 months, with cost are going down on an underlying basis, both Q3 versus Q3, 9 months versus 9 months, they are both at around minus 1.3%.
Looking at the key divisions that composes the company. It is fair to say that of the 5 key divisions we look at, 4 of them are already on target with the stated return or results that we've guided you throughout 2020 and '19 for the corporate center.
French Retail shows a very solid profitability at 12% in Q3; 11.7% for the 9 months of 2019, which is to be compared with our guidance by 2020 of 11.5% to 12.5% return. This is on the back of stable revenues, plus 02% in Q3, minus 03% in the 9 months, and this is very consistent with what we guided in terms of revenues for the year, i.e., 0 to minus 1%. Costs are up year-on-year, 1.3%. In Q3, plus 0.2% for the first 9 months. Again, very consistent and below what we have given as a guidance for the year.
International Retail and Insurance and Financial Services altogether have a Return on Normative Equity of 18.2%, which is on top above the 17% to 18% commitment we have by 2020, more in detail, as you -- we will comment and as retail banking has a satisfactory profitability of 16.4%, both on Q3 and on the 9 months, combined with, respectively, roughly 5% growth at constant change in perimeter and 7% growth on the 9 months basis. This is also consistent with positive jaws.
Insurance and Financial Services, Return on Normative Equity stands at 20.9%, both in Q3 and for the 9 months. Again, combined with a 3% growth for the first 9 months of the year. Again, adjusted at constant scope and permits.
On Global Banking and Investor Solutions, we obviously have a different story, we're not at target with -- in terms of RONE. The RONE stands at 7.7% for the first 9 months of the year and 5.1% in Q3. As already said by Frédéric, we are in the midst of restructuring with some impact on the revenue, stemming from the restructuring equity in place and not all the impact on the cost. Yet, if you would adjust for this restructuring, revenues will be down only 3% roughly in Q3, 2% over the past 9 months, and costs will still be down 4.2% versus the same period of last year.
Corporate Centre is in line with guidance in terms of negative contribution to gross operating income. This is minus EUR 66 million for the quarter, minus EUR 141 million the first 9 months. We have incurred a loss according to IFRS 5 linked to the closings of some disposals, Serbia, Moldova and Montenegro for a total amount of EUR 113 million.
Going more in detail for the core Tier 1. Although you have already been told the main elements. Core Tier 1 stands at 12.5% at the end of Q3 2019. As said by Frédéric, please note that we have adjusted our provision for dividend this quarter based on the full year cash dividend of EUR 2.2 per share. It means 2 -- 3 quarters of it being EUR 1.65 per share. This means basically, given the catch-up we did on the provisioning of the dividend for Q1 and Q2 that you would find this ratio that on the same methodology as the previous quarters. The core Tier 1 stands at 12.6%.
We are managing this capital EBITDA based on our 4 key levers. Number one, organic capital. We continue to produce organic capital this quarter. So if you would adjust for the catch-up effect that I just mentioned, that is equivalent to 10 basis points, you would easily what is the organic capital generation for the quarter.
Number two, deleveraging in CIB activities is well on track. Actually, better than what we had committed ourselves to for 2019. Remember, we had set approximately EUR 10 billion in total, of which EUR 8 billion in market activities. We already managed to do the EUR 10 billion, respectively, more than EUR 8 billion in the market activities and more than EUR 2 billion in the other activities with EUR 3 billion, in particular, additional deleveraging in global markets RWA.
Third, securitization, which partly reflects some of the EUR 2 billion additional I mentioned. We've completed 3 large synthetic securitizations this quarter. I'll leave it for the questions should you have any of them. Some of this transaction has been completed with some interesting, innovative features, including with regard to ESG commitment we have.
Four and last, closing on 3 disposals. Serbia, Moldova and Montenegro translates into 10 basis points this quarter. The other ratios, as Frédéric said, are up and strong. Tier 1 ratio stands at 15.2%, up roughly 50 basis points, more precisely, 46. Total capital ratio stands at 18.5%. TLAC is already fed fee is up and totally fed fee in general relative to regulatory expectations MREL is compliant. And I would like to stress another increase of the leverage ratio this quarter by 20 basis points. Liquidity ratios are strong. The liquidity buffer increases again this quarter and stands at EUR 193 billion.
So if you look, which is on the next page, to the perspective through 2020, you'll find that there are evidences that we can be confident. We should be fastening our target, which is 200 basis points above MDA at this point in time under Basel III or Basel IV. So 2020 will be obviously under Basel III, which is -- translate into the 12% target we have set. As you can see, first organic capital, we already managed to create 28 basis points of organic capital post-dividend at EUR 2.20.
As I said, which is 56% of the 2-year 60 basis point target, 112% of the yearly target of 25 basis points organic capital creation. Reduction of RWA relative to global markets, I've already mentioned, totally done. That's why you have the box colored in pink for total fulfillment. We have said, you may remember that we would -- we committed ourselves to execute 75% of it in 2019. So we have executed 100 basis -- 100% in 9 months.
Other RWA reductions. This is where you would find the 3 securitization I alluded to for the equivalent of 15 basis points on top of other responsible measures we had already benefited from in Q1 and Q2. So we have said 10 to 20 basis points in 2017. One can say we are above the middle of the range. As far as disposals are concerned, we are very well on track. Remember, this is only 9 months for a plan that should span over 2 years. And TRIM, we should still expect a negative impact in the quarters to come. Nothing to change on our side with regards to the overall number.
The next page reflects where we stand in terms of commercial cost of risk. As you can see, the 9 months commercial cost of risk expressed in terms of basis points is 24 basis points, which is to be compared with our guidance of the cost of risk to be between 25 and 30 basis points by the end of the year. So we feel quite confident, again, that we will be within the guidance. The nonperforming loan ratio decreases relative to the same period of last year by a healthy 40 basis points, and that is consistent with still relatively well in comparison to many peers, coverage ratio -- coverage rates of 55%.
The next page, I will comment in detail, just to make sure that when you look at your numbers, and as Frédéric mentioned, there are some elements to remember that create some perturbation in the quarter for the comparison. Last year, we had incurred a value -- a capital gain of EUR 271 million related to our shares in Euroclear. That is about EUR 200 million net income, high-cost tax, which is to be considered as the base effects for 2018, both in Q3 and then for the 9 months. This year, we have the IFRS impact. This is down in the P&L just before the net income.
I would like also to be more precise on the impact on GBIS. We consider we have in Q3, the EUR 95 million negative impact stemming from the restructuring of our activities, i.e., plan -- the execution of the planned runoff and deleveraging for Q3 and for the first 9 months, this number is EUR 151 million. So that reconciles with what I've said before, if you want to recalculate the revenues and net income perspective of businesses.
Looking at the various pillars. Starting with French Retail and, as usual, on their franchisees. I'd like to stress mainly 2 points. First, we continue to win clients in our core franchises. You can see, whether this is companies, wealthy and mass-affluent clients, which are target clients for our (inaudible) up again, and we have another record month of acquisition of clients by Boursorama with 126,000 clients joining Boursorama. Boursorama is already, again, above its target of 2 million clients by the end of 2019, which has been reached already a few weeks ago. Société Générale was also voted for the seventh time in the row, best bank -- Best Customer Service in France.
Second element, volumes are up, that obviously explains some of the performance, especially on the net interest margin year-on-year, medium-term corporate loans has been dynamic with outstanding up 7% this quarter. Individual clients loan outstanding, up 5% year-on-year despite strong selectivity, again, especially on the mortgage loans. We target -- we allocate 90% of those mortgages to what we qualify as a target/premium clients. Life insurance is up. Life insurance outstanding stand at EUR 95 billion, and net inflows are up 9%. P&C premium up again this quarter. Private banking net inflows are EUR 1.1 billion. That is consistent with a good execution of digitization of the network as well as execution of 72% of the branch closures relative to the 2020 targets. I leave it to you to ask questions, should you want to have more details in that respect.
So in a nutshell, when you look at the results, which are on the next page. French Retail Banking post, again, very good profitability at 12% and very much in line with the target of 11.5% to 12.5%, which we have set. Net income is at EUR 311 million. Adjusted for Basel impact, the revenues are globally stable on the back of net interest income increasing by 2.9% relative to the same period of last year, and is plus 0.4% for the first 9 months. Fees are decreasing by 2.3% for the first 9 months and roughly 4% for -- in Q3. However, we stated for yellow jacket measures, self-trade perimeter impacts, you may remember, we had sold that subsidiary last year. And also the fact that we account for the acquisition cost of clients in Boursorama as fees. Fees are only down minus 1.5% versus Q3 2018 and roughly stable at minus 0.2% for the first 9 months of the year.
Costs are increasing 1.3%, respectively, and 0.2%, I've already mentioned. Cost of risk is down. Let me mention that you'll find a capital gain on the sale of real estate property we have. This is part of the rollout of our real estate program account, which is consistent with the transformation plan. We plan to continue to optimize our physical footprint during the next quarters, and we should continue to get from this positive impact on our results going forward.
Turning to international retail. This is a picture that is very similar to -- and positive to -- and similar to what we had shown in the previous quarters. It shows strength in volume production. You can see loan outstanding and deposit outstanding growing across all regions, including sometimes double-digit in certain jurisdictions, eastern Europe, Russia, Africa, which we continue to have some good momentum in certain areas in the commissions. So all in all, you can see revenues are up across the international banks in aggregate by about 4 -- 5% Q3 relative to Q3 and by about 7% over the first 9 months, obviously, at constant scope and foreign exchange with return on normative equity stands at the high 16.4%. You'll find more detail on the page.
Turning to insurance and financial services. This is again a story of commercial strength. You can see life insurance outstanding up 5%; protection premium up 9%; ALD fleet, plus 7%; SGEF, Equipment Finance, loan and lease outstanding up 4%. Overall, the revenues are up at constant scope and change by 3% for these businesses all together over the first 9 months. And the normative equity raises further relative to -- rises further relative to the same period of last year. It stands now at 20.9%. Let me highlight as ALD released their results today and that those results were very positive. Net income is up 7%. And as you can see, the market reaction for those who also follow the share of ALD is very positive, so we're very pleased with that equity vehicle. All together, internet retail banking and financial services results, which you can find on the page next, are up.
IBFS vehicles, a significant contribution to the group net income again at EUR 1.5 million roughly for the first 9 months of 2019, which is up 1.7% year-to-date at constant scope and foreign exchange. Return on normative equity is 18.2%, again, to be compared with the objective to be between 17% and 18% by 2020. So we are ahead. Overall revenues are up both Q3 and 9 months. And we have positive jaws. It is important to know when you look at the 9 months' perspective to remember that we had incurred a restructuring provision in Q2 for the headquarters of international retail. So in fact, the operating expenses are only up 4.5% adjusted for perimeter and change effect as far as IBFS is concerned.
And let me remind you of the fact that on the 20th of November, we will held together with Frédéric and Philippe and the whole crew of those businesses a deep dive in London.
Turning now to GBIS activities. What we would like to do is start first with what we are trying to implement. And what makes us confident that, on that division, again, we will be able to converge with the stated guidance in terms of return. We are in the midst of a fundamental restructuring work. Number one, as you can see, we have managed to decrease very significantly the capital allocated to the division. Over the past 9 months, we have been able to decrease the RWA allocated to Global Banking and Investor Solutions by EUR 20 billion or 14%, which consistent and -- actually even better to what we had indicated to you and, certainly, in advance to the plan in terms of execution.
That obviously has some impact especially on business revenues. The impact, which I would like to highlight, are very consistent with our own expectations with regards to revenue loss. Remember, Séverin Cabannes had mentioned to you, particularly, a potential EUR 300 million revenue loss for the full year market activities, and we are very much in this ballpark. So again, as I mentioned, in Q3 2019, you have roughly an impact of EUR 95 million stemming from runoff and deleveraging as well as Belgium disposal. So if you would adjust the number for this EUR 95 million, revenue would be down only 3.2% year-on-year. And for the 9 months, the same number is EUR 151 million. So revenues would be only down 2% and very much again in line with what we had expected.
Costs are done very much with -- in accordance with our guidance despite the fact, as Frédéric mentioned, that we don't have the full effect of our cost reduction program. The cost have done 4.1% this quarter. So to comment on the little boxes you have here, you can see a reduction of cost of about EUR 100 million, of which EUR 70 million is due to the program, and EUR 30 million is normal cost reduction that we do beyond the program. EMC integration cost represents EUR 30 million for this quarter. So that should help you to run these numbers accordingly.
So if you go to the next page, which is [effective resource] having made some comments on what explains some of the performance. And starting with Financing & Advisory, I would like to stress that for this core franchise, we continue to see strength. We look at it more on the 9 months basis. Remember, this is not a business that you look at on a quarterly basis. So we continue to see revenues up 5% for the first 9 months of the year. So they are down adjusted for the restructuring, 2% in Q3. But remember that we had also a base effect in 2018 linked to strong number of big deals we had done, especially in the TMT space in Q3 2018.
So when you look at it more fundamentally, in Q3, structured finance, a very core franchise, revenues are up 6%, including the impact of deleveraging. When you look at transaction banking, revenues are up to 10%. Obviously, we have some more negative impact stemming deleveraging I've already mentioned and also more chipping in corporate lending, but that is not necessarily the most profitable part of the business.
Turning to Global Markets. Revenues are down 9% in this quarter. They are adjust -- when you adjust for the business closures, especially the citywide closure, revenues are only down 4%. And if you look more in detail, you can see that FICC is up only 1%, but adjusting for what I've just mentioned in terms of business closures, FICC is up 15%, which is much more consistent with the market. As well in equities, revenues are down 20%. Remember, we are more geared toward structured products. And obviously, in equities, cash products were benefited more in Q3 than structured products. But the number we'd like to look at, again, taking some perspective, the number that 9 months -- over the first 9 months of 2019, equities revenues were down 9%, which is slightly better, we think, than the pool and the market.
In a nutshell, the numbers, as I said, return on normative equity for the first 9 months is 7.7%. Underlying normative equity for Q3 is 5.1%. This is obviously not consistent with the target that we have set for 2020 but, again, very consistent with the impact of the adjustment we are making. I won't make more comments on the revenues. I've already mentioned that. Operating expenses are down, as I said, 4.2% in Q3 and, actually, 4.7% constant scope and foreign exchange.
Corporate Centre. I said this is one of the division which, in essence, is also consistent with the guidance. You can see that for the first 9 months, the gross operating income is EUR 141 million, which is compared -- to be compared with the guidance of about minus EUR 500 million for the full year. And we have here the losses from other assets, which I already mentioned, stemming from our disposals. I turn the microphone back to Frédéric for the conclusion.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [4]
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Thank you very much, William. Yes, let me just conclude, first of all, by really saying the full management team is absolutely focused on delivery. #1 priority is capital, and I think we are providing with this third quarter a convincing answer.
Second, on the businesses regarding retail and financial services, let me highlight good and resilient performance of the French retail, which is probably the most profitable French retail business compared with our peers, and the focus is on profitability. I think we have definitely an edge with all our international retail activities and financial services because they are fundamentally in a different environment in terms of rate or immune from the low-rate environment. This is [the optimal driver]. And of course, as William's reminded you, we are going on the 20th of November to enter more into the detail.
And regarding the GBIS, I think there is really very good progress on the restructuring of this business. You should see -- you should look at 2019 as the transition year. But we will have in 2020 the full benefit of all the efforts this year, and I'm very confident in the management team to effectively take advantage of this refocusing.
So as we can see, yes, the environment remains challenging, and we all know that European banks face a series of challenges, regulatory, interest rate. That's the trend. But I think, really, we are moving on the right track, in the right direction. And really, the determination is there to deliver.
That's what I wanted to say. And now we are open to your questions. (Operators Instructions) And the floor is yours.
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Questions and Answers
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Operator [1]
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[Operators Instructions) And the first question comes from the line of Stefan-Michael Stalmann.
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Stefan-Michael Stalmann, Autonomous Research LLP - Partner, Swiss and French Banks [2]
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The first one with regard to the French mortgage market, please. It seems as if potential regulators are taking an increased interest in the market, and there is a consultation going on. Could you maybe outline what your recommendation would be, what the banks should do to address this market and the prudential concerns? And maybe also comment on what you think the prudential authorities will do to address their concerns.
And second, regarding your numbers and your results. I noticed that if I look at the GBIS credit risk-weighted assets, they are down about 17% year-on-year. And I guess if I back out the securitizations this quarter, it would be about minus 12% year-on-year, but your gross loan book is flat. Could you add a little bit of color on where this disconnect is coming from? Are there mix effects? Are there additional risk transfer mechanisms to keep in mind? That would be very helpful.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [3]
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Yes. Stefan. I will give the floor to Philippe Aymerich to comment in detail on the mortgage market as we see it and regarding your question on GBIS to Séverin Cabannes. Philippe, what can we say on the potential evolution on the mortgage?
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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [4]
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Yes. As you say, there is work in progress, discussion with the regulators on that. We are supposed to provide our thoughts within the coming days. What I can tell you is that, yes, the mortgage market remains dynamic. We do consider that it's still very sound, especially [for AG]. I mean we have maintained our selective origination policy that I can share with you. But 90% of our production is with our premium clients. And I also can share with you that, yes, the duration of the mortgages has increased, but it's still quite reasonable.
And maybe an additional comment regarding the renegotiation or anticipated prepayments. So anticipated prepayments remain stable, basically at 6.7%. And regarding renegotiation, they are still very low. At this stage, for us, it's 4.8%. I remind you that in 2017, we went up to 20%.
So in a nutshell, a strong market, which is, of course, very important for clients; stricter origination policy on our side; and we are making sure that [outside, V-side] business, that this product is profitable for us.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [5]
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And if I may add, Stefan, from my perspective, the kind of initiative of the authorities is going in the right direction. What I mean by this, some players probably play the card of volume to limit the erosion of interest margin, but if we see more discipline in terms of pricing, that would be good. Séverin, on the GBIS question of Stefan.
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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [6]
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Yes. So the question of Stefan is regarding the credit risk-weighted asset evolution. Managing our risk-weighted assets by using all the tools that we can have in our hands. And amongst those tools, you have synthetic securitization, you have insurance risk transfer or you have credit risk [through CDS]. So all those 3 lines but are not impacting the balance sheet. They are, thus, impacting the risk transference. So you keep on your accounting rule, on your balance sheet the exposure, the outstanding, but the risk is transferred. But the main explanation of the gap we saw between the outstanding and the risk-weighted asset evolution is due to the [5 cultures] we are using to reduce our capital needs.
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Operator [7]
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And the next question comes from the line of Matt Clark from Mediobanca.
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Jonathan Matthew Balfour Clark, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [8]
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So 2 questions. Firstly, on the EMC contribution. You gave us the GBP 30 million of restructuring cost this quarter. Could you also give us the revenue contribution and the total costs that EMC contributed this quarter? And then secondly, on liquidity, your liquidity buffers have gone up again this quarter and are up year-to-date, and your LCR looks pretty high still. I'm just wondering, why do you feel you need to keep adding to liquidity buffers? And why is this the right level of LCR to be running at because it looks higher than some of your peers?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [9]
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Matthew, I will turn the floor to Jean-François Grégoire, Head of Global Capital Markets, to answer your first question on EMC contribution. Thanks.
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Jean-François Grégoire, Société Générale Société anonyme - Head of Global Markets Business Unit [10]
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So on EMC for the quarter, we have cost of EUR 28 million and the last months 9 of EUR 57 million. Actually, in the EMC acquisition, there are really 2 different -- for market activities, I mean, 2 different type of portfolio. The first one is the structured products that we just currently integrated. And the second one are the one [the industry product, the one business, the ETF] that we will integrate in mid-February next year. It happens that from the start, we knew that the first portfolio, the structured product is not representing a lot of value for us because we already had a significant book. And we want to [give credence] in the growth of this book for risk reason. But that isn't to say that the revenues linked to the integration of this book this year are minimal and this is what was expected. This is not what we are chasing. Everything will -- the most part will be February next year with this one business in Germany where we expect some nice revenues.
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Jonathan Matthew Balfour Clark, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Analyst [11]
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Okay. And just a follow up on the cost, that EUR 28 million, presumably, that is underlying costs, and the restructuring is on top of that. Is that the right way to think about this?
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [12]
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In our accounting, it is not labeled as the restructuring charge. So it is in the underlying. That's why I mentioned it clearly, so that you can adjust on yourself, but this is not -- this is in the underlying number.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [13]
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But I would say some of it is probably some integration cost which will then disappear as part the migration, if may say.
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Jean-François Grégoire, Société Générale Société anonyme - Head of Global Markets Business Unit [14]
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Yes, 9 of them are integrated.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [15]
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Now something like 10 of them are [one of these].
Okay. So perhaps to -- I will turn to William on liquidity.
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [16]
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So thank you. That gives me the opportunity to stress the fact that we are pretty -- we feel pretty good about the fact that we should have a strong balance sheet. And as you can see, [various speaking] in the industry. There is also a structural element to be considered in the increase of capital buffers and LCRs because LCR is a short-term indicator, whilst most of the indicators we follow and we target are on a longer maturity. NSFR is one. All the liquidity and the stress metrics that we follow and stick to have more than the 6 -- have a 6-month horizon at least.
So that -- all that combined is an element of explanation to the LCR being [weighted]. On top of it, you may have seen that we have, as Frédéric highlighted, we have completed our funding program ahead of schedule. And that also explain -- and we continue to collect quite strongly deposits. That's also part of the explanation.
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Operator [17]
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And the next question comes from the line of Azzurra Guelfi from Citigroup.
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Azzurra Guelfi, Citigroup Inc, Research Division - VP [18]
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Two questions, one on capital and one on revenue for next year. Capital, you have clearly done very well, and now you are at 12.5%. The question is on TRIM. Is the guided impact of regulation between 30 to 50 basis points coming all in fourth quarter? Can we assume that?
The second one is on the revenue. And how you kind of strictly -- split in 2, one on the retail and the CIB. Retail revenue, especially on the NII, your margin are better and more resilient than peers. So can you give us some indication on the main reason behind it and the outlook for next year? Because volume seems to be pretty similar to the main peer. And in the CIB, am I understanding well that next year, you will have more or less EUR 100 million additional decrease from the restructuring plan compared to where you finish 2019?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [19]
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As you are, I will leave Stefan commenting on your [CIB] , Philippe and [Marie] on the perspective of the net interest margin for next year. Let me just highlight that I'm absolutely convinced that in this market, we are more disciplined in terms of credit origination and pricing than our peers. But Philippe will explain further. And regarding the TRIM, I will turn to Diony. Well again, yes, the [bulk] should come. But again, there is uncertainty, let's face it. It does not depend on us, and it depends on the supervisors. So Diony, perhaps, can you elaborate on this?
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Diony Lebot, SG Corporate & Investment Banking - Deputy Head of The Coverage & Investment Banking Division and CEO for Western Europe [20]
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Yes. So as [Fabian] just said, we don't control the timing, what we have already explained, is that we had most of the decisions related to high default portfolios, meaning retail and mortgages, which was not too material. We had a few TRIM reviews on the low default portfolio, so meaning large corporates, markets, et cetera. And we are still expecting the decisions. But the admissions are -- have, on these portfolios has ended. So we keep our estimate at the range of overall 30 to 50 basis points, and we expect the bulk of it in Q4. Maybe some would slip in next year, but that's our best estimate now.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [21]
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But if I may, to a certain extent, it should be relatively indifferent on the timing. What is clear is that we have the buffer to absorb. And I think you have the road map towards end of 2020, which is pretty detailed. Philippe, can you remind us to the guidance for next year?
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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [22]
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Yes. Yes. First, regarding the evolution of the net interest income. I should remind you that this increase this year comes after a significant decline last year. And that's true that we work very hard to stabilize our revenues as promised. So what we have done, as mentioned by Frédéric and William, is a strict credit origination. We always speak a lot about mortgages but I would like to also insist on the very good performance on consumer loans. And even more important, in corporate loans, I have to remind you that 50% of our NBI is coming from corporates and professionals. That's very important to us. We have also worked quite hard and will continue to do that on the repricing of the -- on the term deposits and making sure that we have the right mix between the deposits, making sure that we have the right allocation both for the clients and for the bank. So this is all these kinds of things that we have done and that we'll continue to do to improve, to maintain the net interest income. Regarding the guidance on the revenues.
What we have said is that for this year, we'll be in the range of 0 minus 1. And basically, in the same trend for next year.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [23]
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Thank you. Séverin, Can you answer as well as (inaudible) please?
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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [24]
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Yes, as you saw, this third quarter is the first quarter where we have the full impact in terms of NBI loans adjust this year and become -- regarding principal and they help trading. So it's fair to say that we will have the full EUR 200 million impact on the NBI this year. You're right. And then next year, you will have less than EUR 1 million, I would say, in terms of a negative impact because impairment -- the fourth quarter will have the full impact of the third quarter also. Having said that, we are also growing activities. You will not see that in the NBI, of course, because all the rest is growing. You will have as mentioned by Jean-François, the EMC impact on the listed products, which could give us additional revenue in next year. And our growing franchise like asset finance are growing and [collective] banking and all the other businesses area. But you're right to say that the full impact is not visible this year.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [25]
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Thank you. Next question.
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Operator [26]
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And the next question comes from the line of Jon Peace from Crédit Suisse.
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Karl Jonathan Peace, Crédit Suisse AG, Research Division - MD [27]
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So 2 questions, please. Number 1, on the Corporate Center. You've continued to exceed your guidance. I just wondered if there's any update on that for the full year and maybe also into next year? And the reason for the beat of the guidance? And the second question is just on Basel IV, do you have any update, please, on your expectations around timing? And also, you gave us a number once before. How has that number evolved?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [28]
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Hello. I will turn the floor just to William, on the Corporate Center.
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [29]
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On the Corporate Center, you're right, went out that we were obviously much, much below in 9 months relative to the cadence we had set forth. And I'd like to say that we don't like to change guidance in the course of the year because we are beating the guidance. It is fair to say that the [500] is probably on the conservative side.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [30]
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Yes, probably. William, on Basel IV. But we have a great update, and let me just remind you our impact just in the second quarter of Basel IV. So we see nothing to change.
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [31]
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There is nothing new in the debate that makes for us to change perspective now in the composition of the business product. So as you remember, it's about 110 basis points in 2020, which probably the consultative assumption as well, given the pace at which the discussions would be -- will evolve. We have also given some indication that the output flow will not [bide] before 2027. It will be a smaller part than from many people who have -- with these numbers. And we still expect the [RTB] of somewhat, if that happens, between 23 and 24. So all that I can say is there is no reason for us to change the way we steer the capital. We feel confident that with the level that we should reach by the end of 2020, combined with the organic capital generation I mentioned earlier, we should be in a position to absorb that level.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [32]
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Thank you. Next question.
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Operator [33]
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And the next question comes from the line of Lorraine Quoirez from UBS.
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Lorraine Quoirez, UBS Investment Bank, Research Division - Director and Equity Analyst [34]
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Just a few questions for me on French retail. The first one will be, how long in your view, will it take before the deposit margin stops being under pressure, how many years? And then my second question would be on the guidance for next year. What is the assumption that you made for fee growth when guiding for revenue flat to minus 1%?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [35]
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Lorraine, we do not give this level of detail. I think we are already the first to give a guidance for the revenues for 2020. So we will give you maybe more a bit later and certainly not now. You have, again, a clear good visibility for the revenues for 2020 overall. On your second question on the erosion of the deposit margin.
I'm not sure that we also, same thing, we can give so much ahead. Philippe?
,
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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [36]
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No. I mean, it will remain under pressure. What we are doing, as I said, it's making sure that we have the right allocation both for the clients and for the banks of [the SS]. So between, of course, accounts, savings in the balance sheet, long-term deposit, of course, life insurance, financial products. And I think that the [particular thing] for us and for all the banks in the coming months, in the coming years, just making sure that we are proactive and we adjust to this new equation.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [37]
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Thank you. Next question.
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Operator [38]
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The next question comes from the line of Tarik El Mejjad from Bank of America.
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Tarik EI Mejjad, BofA Merrill Lynch, Research Division - Equity Analyst [39]
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I have only one question, actually. So you saw I think the headlines this morning about the German finance minister, who finally opened up foreign EDIS and put things in motion for banking union and the French finance minister who has said banking will be determined in the [euro group] meeting -- be discussed, the banking union.
So can you probably comment on how you think things will evolve from here? Obviously, there's conditions apparently about sovereign risk weights and about NPS and so on. But do you see really like potentially banking union being implemented or put in place quite rapidly? And for you specifically at SocGen, how would that benefit you in terms of better balance sheet optimization and potentially ambition to do cross-border M&A?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [40]
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Tarik, first, let me say, it's very good news. And I would highlight, because to see a German finance minister taking care of this topic confirms the view, at least that I have and that the French government have, that it should be part of one of the top priorities of the agenda of the new commission. Completing a more efficient, more robust overall financial sector with the banking union and the capital markets, which are 2 elements of the same play. So it's very good. Second, beyond completing the banking union, I think it probably reflects also the growing awareness that public authorities need to pay attention to, of course, creating a more -- a better environment for banks. And I'm not surprised. I think I had the opportunity to mention that already. I had the feeling that there was more attention by the German government in the last few months, and to a certain extent, it is a confirmation. Now more practically speaking, as you said yourself, they are -- it is probably more a kind of road map which is being proposed with some complex topics. And the one you've mentioned, in particular, this issue of sovereign debt. We know that the sovereign debt issue is a preliminary condition, probably for the German government to move forward on EDIS, knowing that the structure which is proposed is very similar to the one we had in mind, actually, you know sir, the 3-tier level, and not creating a single fund, but having a kind of reinsurance system. So I'm -- if there's a capacity to move forward I think it's probably around this kind of option on the EDIS. But again, there's a need to find a solution on the sovereign debt and it might take some time. Again, what I find very positive is that it confirms that there will be further discussions. And from that perspective 2020 is probably the crucial year, not to deal with everything, but at least to have clearer road maps. And for us to highlight what is at stake beyond EDIS because it is important, but there are other elements to have a more consistent and more strategic approach of the financial sector in Europe.
And so this is a positive move, even if, of course, the devil is in the detail, and it might take some time on certain topics. In terms of impact for us. I don't think there's an immediate short-term benefit. And again, we'll have to wait for 2020, but it means also Basel IV implementation might be something that governments will look at closely and the European Commission. So 2020 should still be, in my view, a year -- a confirmation of the regulatory framework. And then our banks and ourselves will see, probably more towards 2021, whether or not there are new opportunities. I don't think, premature. But -- and for us, it's great to have anyway a year to further complete our road map, our business model adaptation. We'll see what it means. But at least, I think it goes in the right direction.
Next question.
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Operator [41]
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Next question comes from the line of Jean-Francois Neuez from Goldman Sachs.
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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [42]
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The question that I have remaining is that in the month, I think, towards the end of the summer or beginning of September, there were a few press articles which were mentioning the potential for SocGen to remedy what has been essentially impact from deleveraging, which were expected, also by additional cost cuts, in particular, in the central functions, which were amounting at least according to the press to a significant amount. And in view of the deleveraging revenues which have been lost, and the ROE where the bank is today, I guess, this seems to many market participants as the main avenue to regain capital generation potential above what is currently the case. I just wanted to understand whether there was anything to it? And what is your key lever from here to get the ROE, the ROTE back on -- at or close to cost of capital?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [43]
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Let me just, first of all, highlight that on GBIS, as we've said, the EUR 500 million savings, fundamentally, are [not in] there. In the restructuring, people have raised their hands. We know who is going to leave or might have left end of September or is going to leave in fourth quarter, so we have already the costs.
So first, a very important level there. And beyond, let me just say, we are, of course, going to carry on focusing on cost. And you have my own dedication and commitment on this. So it's not the end of the story.
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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [44]
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And have you got -- so my second question would be, have you got an absolute cost number you're ready to share, which -- or cost cap which you are ready to share with us, would be ready to share with us for next year?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [45]
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No, not yet. We have the 1.6 -- don't remember, we have the EUR 1.6 billion of savings that we are implementing in a very disciplined way, including EUR 500 million on GBIS. This is currently the target. But as I've said, the story will not stop end of 2020.
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [46]
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We can't be more precise than what we've been. We've already committed to an absolute cost base for GBIS decreasing to [EUR 6.8 billion]. This is consistent with the EUR 500 million net cost reduction that Frédéric reiterated, of which we give you today the portion that has been already executed, i.e. the [70 almost 100] I mentioned in Q3. So basically, I think you have normally most of the numbers. We also gave you some clarification with regard to impact on deleveraging as well as stressing the fact that there is no deviation to what we had anticipated for a full-year effect. So hopefully, that would clarify on your modeling.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [47]
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Next question.
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Operator [48]
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The Next question comes from the line of Omar Fall from Barclays.
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Omar Fall, Barclays Bank PLC, Research Division - Analyst [49]
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Please just 2 questions, please. So firstly, have you made any changes recently to the allocation of swaps in your deposit reinvestment? For example, in terms of duration. I recall in the past, you've said you had like EUR 30 billion of deposits also being invested short term out of the total EUR 200 billion. And then for new deposits, as you update your macro hedging, what stops you from simply not entering into new unprofitable swaps? Would there be regulatory considerations, i.e., the regulator would think you had more interest rate risk and that would play into your [trap]? And then the second question, just on asset quality. Can you update us on your thoughts there? NPLs continue to come down slightly, but like everyone else, cost of risk is picking up due to an absence of write-backs and a few files in CIB. I guess, you're still comfortable with the group level target of 35, 40 bps next year for cost of risk? And then in particular, if you have any thoughts on the consumer credit in Africa, cost of risk, that would be interesting in international retail.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [50]
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Okay. Now on your first question, let me say, we pursue the government policy in terms of ALM, there was no recent change and nothing more to comment. Perhaps Diony, what can you say on the cost of risk? I don't believe -- consumer credit in Africa to be frankly, it's relatively limited. So I mean, I don't think there's anything on that specific topic, but more globally, Diony.
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Diony Lebot, SG Corporate & Investment Banking - Deputy Head of The Coverage & Investment Banking Division and CEO for Western Europe [51]
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Yes, globally, cost of risk remains low. You saw 26 basis points for the quarter, 24 for 9 months. So well within our guidance for this year, 25, 30 basis points. Very strong risk profile across the board. We have decided to progressive normalization of cost of risk for 2020. Taking into account also the fact that we have benefited the last quarters from the write-backs of provisions, in particular, in international retail in Europe. So this leads us to think that we are going to see this progressive normalization. So the guidance of 35, 40 basis points for next year still remains our guidance. Again, a solid risk profile. We continue to see the reduction of NPLs both through improvement of portfolio, but also active management of NPLs and sales, and we will continue to see this trend.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [52]
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That's very well and from Philippe on consumer credit beyond Africa.
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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [53]
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Just to mention that the cost of risk, as we see it today on the [IDS] side, is principled. The kind of consumer finance we have, so in terms of the strategy, we are talking of consumer finance mainly in Western Europe, mainly in car loan. So this is the type of consumer finance which is, let's say, it's very secure by nature. And we have a certain amount. We have a partnership with [02], ensuring that the cost of risk is very limited.
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Omar Fall, Barclays Bank PLC, Research Division - Analyst [54]
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Got it. And sorry, just a quick follow-up just on the first question. I understand that nothing's changed for your existing hedging. But just to understand for new deposits, if you did want to change your hedging policy, is there something that stops you from a regulatory perspective from doing that?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [55]
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No, no, there's nothing of that. We have had not to change for regulatory purposes our RLM. It's more of an economic approach of models, which are very traditional, if I may say, so there was nothing about regulatory changes.
Next questions.
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Operator [56]
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The next question comes from the line of Anke Reingen from RBC Capital Markets.
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Anke Reingen, RBC Capital Markets, Research Division - Analyst [57]
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I just wanted to ask about the costs in retail banking and your guidance of the cost increase of 1% to 2% this year. Would you characterize that as a conservative guidance given the trends in the first 9 months? Or would you consider or should we basically to keep the old guidance? And then I'm not quite sure if I understood your comments correctly, you were saying, there are positive developments, and the guidance is obviously 2020 decline. Would that be beyond the investments of 2019 dropping out as you take more actions on costs in your network?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [58]
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On, on the cost of retail. First of all, we stick to the guidance. And let me just remind you that we have said in the previous conference that it might include a limited restructuring provision given what we've just announced 2 weeks ago. So 1 to 2 is a good guidance given that perspective. For next year, we don't intend, again, to give more detail than saying a decline of cost, same thing. We are the -- I think, only bank in France which is giving this kind of guidance. We will update you in due course. But the idea is to say, yes, we have spent quite a lot in the restructuring. This restructuring will be pursued. But at some point, we are able then to get the benefit of all the investment. And that's why we say a decline of the cost next year. We can't give you more detail at this stage.
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Anke Reingen, RBC Capital Markets, Research Division - Analyst [59]
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Okay. Just to ask, you said a few times now, you can't update us now. So with full year results, should we expect an update of your ROTE 2020 target?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [60]
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Well, yes, we see, as usual. As usual, the end of the year is the way to look at the year and, of course, give you information on the running year, if I may say, 2020. But again, you have guidances which are pretty precise already on the French retail, GBIS, as we've said during the call.
Okay. Next one.
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Operator [61]
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The next question comes from the line of Kirishanthan Vijayarajah with HSBC.
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Kirishanthan Vijayarajah, HSBC, Research Division - Analyst [62]
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A couple of questions from my side. Firstly, on capital on Slide 9, and specifically, your securitization, risk transfer bucket, where you've only earmarked another 3 bps to do. And I compare that to one of your peers that view securitization more as a kind of ongoing tool for RWA optimization. So I'm really just curious, your thought process there, why you think you can't do more. And specifically, are there any kind of regulatory constraints from being maybe too aggressive with things like synthetic securitizations coming from the regulator? And then secondly, just follow-up on the Commerzbank EMC business. Thanks for the cost numbers you gave us. But the -- earlier, I think you gave us a GOI target of EUR 150 million per annum from the EMC business. I'm just wondering, is that still valid? Or given the market environment, that feels a little bit of a challenge for that business now?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [63]
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I will turn to William for your first question, and then to Séverin for the question on EMC. William, on the securitization techniques.
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [64]
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First of all, thanks for the question, because that gives me an opportunity to state that most of it, effectively, you could add to the organic capital generation. That is an important factor. It is true that most of our peers report the benefit from this type of securitization, including the organic capital generation, as it is very much a way to work on your own balance sheet and how you evaluate. The reason why we decided to put it here is because you may remember, in CIB, we had said we want to implement a deleveraging of about EUR 10 billion. I believe about EUR 10 billion of RWAs, of which EUR 8 million in the market and 2 elsewhere. And basically, the 2, you would find through the securitization of risk transfer. This is equivalent to 7 bps of core Tier 1. So effectively, it would be easy to add back at the very least 10 basis points to the organic capital generation, which will then stand at 38 bps relative to the 50 bps objective completed in the first 9 months.
So we will continue to do this type of securitization going forward as a way to breathe -- to have our balance sheet breathe. There is no particularly -- particular problem on the regulatory side as you know all the securitizations have to be submitted to the ECB. There is a very formal process for it. All of the transaction we have submitted to the ECB have been accepted as they were shaped so -- and I don't expect that there should be any problem. I think there is more and more convergence to us in standard features. So that we can collectively in the industry do more. And last comment, you mentioned that we have 3 to do. Listen, this is a 10 to 20 basis point objective. So I consider we are going to achieve the objective, but we may do 3 in the near-term.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [65]
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Thank you. Séverin on the EMC.
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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [66]
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We are still confirming that we will stick to the EUR 150 million gross operating income generation as the net EMC integration. But this will be visible fully in 2021. Very important to have that in mind. The transfer is clearly on the -- has been done partially this year. Francois may comment on the rest to be transferred. But the cost synergies, which is one part of this GOI generation, will not be completely delivered next year. And so you have to have that in mind for more to 2021.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [67]
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Next question.
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Operator [68]
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The next question comes from the line of Pierre Chedeville from CM-CIC Securities.
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Pierre Chedeville, CM-CIC Market Solutions, Research Division - Analyst [69]
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One question regarding M&A. I remember that you were quite ambitious regarding this activity. Today, we see that this business is decelerating everywhere in the world. Do you still -- are you still very ambitious whatever the result of this quarter in this activity? And could you give us a little update regarding your setup in this activity, teens figures. Anything interesting to see there? And my second question is how would you qualify, I would say, the ambiance in your group, regarding the fact that we have the integration that you have made a lot of efforts for shareholders to pay them a good dividend and also to avoid them capital increase. And the market is applauding that. But what about your salaries now? And don't you think that it's time for them now to give them, I would say, a new story. Because you can, as people say in France, you can die (foreign language) And what would be the next step?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [70]
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Pierre. Good afternoon. I will leave the floor to Séverin, but that -- to answer your question. I think, first of all, I'm very lucky to have people in this bank who are very, very engaged, who are attached to the company. It's the result of our story. And I must say, including in areas which are under -- in a restructuring mode, like in any bank, and let's face it I don't think there's a paradise somewhere in Europe. But in the French retail or the GBIs we are now passing the most difficult moment, the moment of the announcement of restructuring, et cetera. And I'm very confident in the different management team precisely, and I must say, everybody is encouraged by the progress made in the last 9 months after the beginning -- a difficult beginning of the year. Everybody on the contrary is encouraged to pursue the trajectory. And we want to complete the job at Horizon 2020 because in itself there are plenty of things which are being done, plenty of very positive things, the development of activities, investment in technology. We are taking advantage of differentiating presence in geographies and businesses. Philippe Aymerich mentioned the fleet management. I could mention Boursorama, Africa is the territory of growth et cetera, et cetera. So I'm very convinced that yes, everybody is aligned, motivated, engaged in delivering further. And then in due course, we will prepare, I would say, the next financial and strategic plan, 2021 to 2023, '24. I think we need to do that to have more clarity on 2020, as I mentioned, on banking Union, Basel IV blah, blah, blah. It would be good to have more visibility. There's no urgency, and you will see, as I said. I think my message at the end of this presentation was a message of confidence in the capacity of the teams in these things, to carry on moving forward. And let me just remind you that there's a significant number of people who are also shareholders. And so when they see the share increase, it's not just for outside shareholders, it's for all of us. And so it gives good morale. Now I will turn the floor to Séverin on your question on advisory services.
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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [71]
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The answer to your question is yes. Yes, we are still committed to this part of our investment banking offering, clearly. M&A is a fee-based activity and very much related to the quality of the senior relationship you can have with your clients, even corporate or financial institutional clients. It's fair to say that we are not legitimate in all geographies or sectors, clearly, but we are very much and highly considered in some sectors and in some geographies. And I would continue really to commit and to invest in that direction. More generally speaking, I think that when the balance sheet is at stake. When the bank is providing [transcare] resources to its clients. There is also more and more possibility to really deal on pure advisory. My view is we'll have to push further advisory fees in the CIB world. And Societe Generale, in my view, have a lot of capability to do that, not only on M&A. We have also, as you know, in project finance. We have a lot of other advisory capability, but M&A is part also, and we will be still committed on that on the sectors and geographies where we are legitimate.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [72]
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Next question.
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Operator [73]
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And the next question comes from the line of Flora Benhakoun-Bocahut.
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Flora A. Benhakoun, Deutsche Bank AG, Research Division - Research Analyst [74]
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The first question I'd like to ask is regarding the revenues in the financing and advisory business this quarter. You had a very strong performance the past 3 quarters with a much higher run rate than you just printed here in Q3.
I understand that you had quite some impact this quarter from the RWA optimization you are doing there. So the question is whether Q3 is a new normal run rate given all the RWA optimization you have done? Or we should consider that Q3 is a bit of a one-off and you continue to see good growth in that business? And the second question is regarding French Retail Banking. I understand you don't want to provide more details on the 2020 outlook yet. Maybe can I ask it a bit differently because you're guiding for revenues to be down between 0% and 1% and a slight decrease in cost. So could you -- do you think you can achieve positive [JOST] in that business next year?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [75]
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Flora, I will turn to Séverin, on your first question, Philippe Aymerich on the second. Séverin?
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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [76]
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Yes. The third quarter results, as you mentioned, for us impacted slightly by the deleveraging. But the real underlying analysis we have to make as this quarter has been weak in 2 [wholes], in investment banking activity and in our corporate banking. In our pure commercial banking activity, the deleveraging had an impact on the revenue, of course, we have less exposure. But the good news in this number, which as mentioned by William, is that our asset finance capability -- I mean, our structured finance capability and our transaction [finance] are still on a positive growth dynamic today. So we are really focusing, as I said earlier, on the strength of the company, and those areas are still growing. So we have been impacted slightly by the deleveraging on the commercial banking activity and by a weak market on investment bank with -- and it will be up to you to see what will be the revenues in the investment bank next year. It's a difficult market condition and it could change. But the real point is our structural trend in terms of asset-backed finance, in terms of structural finance and [commercial] banking are still positive this quarter.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [77]
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Thank you. Philippe?
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Philippe Aymerich, Société Générale Société anonyme - Deputy CEO [78]
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So of course, we are in the middle of a budget process. We are still running the numbers. So yes, of course, we do confirm again the guidance of reduction of cost base in actual terms. The guidance on revenues between 0 and minus 1 and positive [GOST]. It's good ambition, and we are working on it.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [79]
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Thank you. Gregoire -- oh, next question, sorry.
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Operator [80]
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The next question comes from the line of Gregoire De Salins from Morgan Stanley.
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Gregoire De Salins, Morgan Stanley, Research Division - Research Associate [81]
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Yes. 2 questions on my side. So the first one on disposals, so you still have like 40 bps of noncore disposal to complete by 2020. Given that the deadline to reduce target is relatively close now with 12 months to go, I guess, you should have a relatively good visibility on the assets you are looking to sell. So could you just please confirm the kind of assets you're looking to dispose like the key quota area that you will look at? And secondly, on money laundering. So Banque de France has recently issued an AML assessment report in which it strongly requests some banking players in France to strengthen their QIC and compliance systems. Could you please just tell us how comfortable you are with your current level of spending to support your compliance function and your internal control environment?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [82]
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I will take briefly the 2 questions. First, let me highlight what I can say is there are now currently further processes which are going forward in terms of disposal. Clearly, I will not say more on more specific assets. But typically, these are assets that we have identified, which in our view, are more nice to have but not core strategic assets in terms, in particular, of the amount of synergies. And what we will never do is jeopardize the core franchises, which fundamentally work for common client base, and I'm confident with the assets that we have identified as we've done in the past. I think the IBFS, the performance from that point of view illustrates that we've been able to maintain in absolute term despite the disposal and further improve the profitability of the business. So it's exactly in line with that.
And I think it makes sense. Second, on your question, let me just highlight that we are spending a lot, actually, a lot on different remediation programs. As you know, we settled some litigations with U.S. and French authorities as part of it. There are remediation program which are currently up and running. We invest a lot. We will not compromise the investment there because, I must say, it would be easy to make savings, but if it's at the cost of our reputation and with big fines I think it's a very short-term calculation. And I would say probably for the next still 2 years, 2020, 2021 in practice. As you know, we have some litigation in mid-2018. Typically, it's a 3-year program. We will have this kind of cost and we are not compromising. So I think we remain on one hand, very humble, because the level of requirements are always increasing. We are asked to find needles in [haymake]. As we all know, there's nothing specific from that perspective for Société Générale banks. But let's say, the idea is certainly to further develop strong control functions. But you have already that, I would say, fundamentally in the cost base and it would be like this for the next 2 years.
Next question.
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Operator [83]
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And this question will be our last question. Guillaume Tiberghien from Exane.
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Guillaume Tiberghien, Exane BNP Paribas, Research Division - Head of the European Banks Team & Analyst of Banks [84]
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I have 2 questions. The first one is on capital, and the second one on GPIs. So on capital can you, number one, remind us whether there's going to be an impact from the EBA guidelines and from calendar provisioning? And the second subquestion on capital relates to Basel IV. I want to challenge you a little bit on your [EUR 36 billion] guidance because it only refers to standardized credit risk and operational risk, but your model on operational risk doesn't seem particularly aggressive. So that leaves a lot for credit risk and you're going to have about EUR 8 billion of RWA increase from TRIM. So in total, that seems quite a big number. The second question relates to the GBIS. So based on your current capital allocated, if I want 11% ROE that means I need to have about EUR 2.2 billion pretax. And if I add back the EUR 6.8 billion of cost, I need basically EUR 9 billion of revenues. And I ignore provision and I ignore the EMC business for simplicity, they -- one offset the other. EUR 9 billion of revenues, your current run rate in Q3 is EUR 8 billion. So where is this EUR 1 billion going to come from?
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [85]
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I will pass the floor to William on your first question, and to Séverin on your second one.
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [86]
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There were actually 3 questions in your first question. On the [guidance] I understand the backstop, on NPL and the Basel IV assumption we've taken. On the first one, listen if we don't make any particular comment, it is because this has not particularly a major impact on us. So overall, when we have disclosed the TRIM and other regulatory impacts that encompasses everything BIII, Basel IV that we anticipate in our capital trajectory to happen in the next years. Maybe in certain areas, others are very different. But usually what we see is that our practices are already quite in line with I think expected plus-minus provisions or [site] default accounting. With regards to the backstop, I don't think it will have a major impact. It will have some impact, but you see it in the trajectory. And then you have the supervisory guidance that each of us has received from the ECB. As you know, this will be part of the SREP discussion. So it does not necessarily translate to the extent there would be some findings into a provision. If that would change, we obviously would update you. But actually we -- so far, we think it's manageable. And on the 36 [37], listen that encompasses all assumptions we make, be it on credit, including [caisse CVR] and up risk based on the interpretation we have of the tax as it stands. And there is no reason for us to think that we are either too conservative or too rosy relative to the stated knowledge we have. We don't provide the details behind the EUR 36 billion, that's a basket, which I can reassure you encompesses every bit, again, credit risk, op risk and caisse CVR .
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [87]
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And knowing, Guillaume, that I think that in terms of current density of operational risk, we are significantly higher than a lot of our peers. So our starting point in operational risk is relatively high in terms of density. And so the gap might be also a little bit lower.
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Gregoire De Salins, Morgan Stanley, Research Division - Research Associate [88]
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But, that was -- Frédéric, sorry, that was my point, which is I think your EUR 36 billion is actually quite aggressive -- quite conservative.
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William Kadouch-Chassaing, Société Générale Société anonyme - Group CFO [89]
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And this is the reason, Guillaume, thank you for this comment, I mentioned that we -- at this stage, we have no reason to think that it's either too conservative or too rosy. So we don't want to change it.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [90]
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Séverin?
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Séverin Cabannes, Société Générale Société anonyme - Deputy CEO [91]
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Yes, thank you for your question. We -- I do not consider that the third quarter is a running quarter. Because you have -- you are right to say that EUR 2 billion as revenue for the third quarter, [point 8]. But as you know very well, the third quarter has always been, historically, the lowest quarter for us in terms of revenue. So we cannot consider that as the running level today. And on the other hand, we will continue to have growth in some area and we continue to allocate our capital on the right position to deliver this growth next year. Even if we do suppose -- on businesses where we consider that the return is too low. And we are committed to continue to focus on our cost management also. So the way we will deliver on this target for next year is working on all the line and continue to work on all the line. I mean, we want the full benefit of the consolidation plan next year, which is not visible yet in your P&L. So we have one point in terms of revenue. It's not, in my view, [much by] EUR 4 billion to EUR 2 billion of this quarter, and we will have more benefit on the cost next year.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [92]
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Thank you. Any more questions?
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Operator [93]
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We have no further questions. Speakers, please go ahead.
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Frédéric Oudéa, Société Générale Société anonyme - CEO & Director [94]
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Okay. Well, listen, thank you very much for your time, and have a nice afternoon. Thank you very much. Bye-bye.
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Operator [95]
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Thank you. And this does conclude our conference for today. Thank you for participating. You may all disconnect.
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