Operator: Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas Q3 2026 Results with Jean-Laurent Bonnafé, Group Chief Executive Officer, and Lars Machenil, Group Chief Financial Officer. For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. During today's presentation, you will be able to ask your questions by pressing star one on your telephone keypad. I would like now to hand the call over to Jean-Laurent Bonnafé, Group Chief Executive Officer. Please go ahead, sir.
Jean-Laurent Bonnafé: Thank you. So good afternoon, ladies and gentlemen. We are proud to present very strong Q3 results, which further strengthen our conviction that we will beat our 2026 trajectory. We are well on track towards our 2028 target of double-digit earnings growth CAGR over 2025, 2028. We expect to reach a CET1 ratio in excess of 13% at year-end, and we are pleased to announce today that we will launch next Monday our EUR 1.3 billion share buyback program as part of the 2026 distribution. As you know, we are finalizing the preparation of our next strategic plan, which we will present to you on 2 February next year. We are vigilant given the current political environment, but the reality is that our group continues in the direction that we have set. Our reliance on France is limited, as we are very internationally exposed.
Jean-Laurent Bonnafé: We are working on growing our corporate, institutional, and affluent client franchise in CIB, CPBS, and IPS. We are preparing our next strategic plan, including our efficiency plan. These are our priorities. I will now discuss all these elements, starting with a summary of our results on slide 4. Q3 was very strong. Revenues rose at close to double digit, with a particularly strong performance of CIB and CPBS and a solid performance of IPS. The jaws effect accelerated further at 4.1 points, and our cost-income ratio improved more than 2 points, in line with the trajectory we envisage in the next strategic plan. Cost of risk was stable at 39 bps and remains within our guidance of less than 40 bps, which we observe through the cycle. All in all, this means that operating income was up nearly 18%, and net profit was up nearly 14%.
Jean-Laurent Bonnafé: We now focus on our capital. Our CET1 stands at 12.9%, reflecting the acquisition of Athlon, but we expect to be strictly above 13% at year-end. We will be launching next Monday our share buyback program of EUR 1.3 billion in anticipation of the distribution of 2026 earnings. Let us now move to slide 5, which is a reminder of our cost savings ambition in the next strategic plan. After 3 quarters in 2026, we have achieved EUR 540 million of cost savings, and we are well on track to reach our savings target for this year of EUR 700 million. The savings will further accelerate from next year, reaching EUR 1 billion per annum, equivalent to about 3% of our cost base annually, or EUR 4 billion cumulative over the 4 years of the strategic plan.
Jean-Laurent Bonnafé: As we indicated to you, we are preparing this year a transformation of our support functions, and we anticipate savings between 15% and 20% of the cost base. This will represent about 60% of our total EUR 4 billion cost savings over 2027, 2026. We now move to slide 6, reminding you of our targets. After a strong first 9 months of the year, we confidently reconfirm both our 2026 and 2028 trajectories. Given the strong progress we have already made towards exceeding our 2026 target, we are fully focused on accelerating EPS growth and delivering on our double-digit growth target over 2025, 2028. We expect our return on tangible equity to exceed 13% in 2028, and this will be driven by strong revenue momentum, very well illustrated in this 3, but also tight cost and risk-wide discipline. We will come back to this later.
Jean-Laurent Bonnafé: Our strategic plan will be presented on 2 February, followed by deep dives throughout the year, starting with CIB on 25 February. Our return on tangible equity and cost-income ratio targets will be much improved compared with our 2028 ambition, and this will allow us to accelerate our distribution based on a strong capital position. This strong capital is well illustrated on slide 7. As you can see, our capital path has improved regularly in the last 15 years, and this has been combined with increased distribution to shareholders. We also expect our CET1 to exceed 13% at year-end, and we will consider additional distribution on an annual basis. We will provide more clarity on 2 February. Let me now hand over to Lars, who will present our Q3 results on slide 9.
Lars Machenil: Thank you, Jean. Good afternoon, everyone. I will now spend time on slide 9. As you know, all our numbers, but all of our aggregates are very strong this quarter, and our cost-income ratio improves with more than 2 points. Over the first 9 months, our cost-income ratio fell to 59%, underpinning our target of 60% for the year. Let me now move to slide 11, where you see that our revenues are up 9.5%. Let's look at the divisions. CIB first. CIB had an excellent quarter, with revenues up around 17%. They are basically up in all three divisions. First, global banking accelerated sharply in Q3, as we anticipated in Q2, and we maintained our number 1 position in EMEA investment banking amongst European banks and gained over 60 basis points market share.
Lars Machenil: Secondly, global markets was particularly strong, up 22%, including a 55.0% pickup for equity and prime services, with revenues exceeding those of fixed quarter and highlighting strong client appetite and clients franchise. Turning to FICC, revenues were stable at a high level, supported by APAC and Forex products. Finally, the third division, security services, grew 18%, taking advantage of high market levels, volatility improved margins, but also the ongoing client onboarding. That's the first division. Now look at CPBS, up by about 4%. As Jean-Laurent explained earlier, our Eurozone commercial banks are enjoying very strong top-line growth, and once again, a double-digit net income growth on the back of an interest rate environment that, as you know, is quite favorable for us. Notably, thanks to the stability of our non-remunerated deposits. Moreover, client activity was strong, as illustrated by the healthy uptick in financial fees.
Lars Machenil: Moreover, the specialized businesses benefited from improved volumes and margins when it comes to personal finance. Regarding Arval, let me start with the underlying momentum, which remains very strong. So organic NBI growth was 12%, supported by fleet growth of 6% and growth in outstandings of around 7%. This strong momentum is currently being impacted by headwinds in the used car market across the industry, exacerbated by the geopolitical environment leading to higher fuel prices. These higher fuel prices mainly affect ICE vehicles. Given the limited visibility on the conflict in the Middle East, our current assumption is that the trend in used car prices might continue. Having this in mind, and giving the average two-year life cycle of the vehicles, it would be reasonable to assume that the benefits from Athlon integration will be offset by used car sales.
Lars Machenil: So with Arval and Leasing Solutions' gross operating income remaining broadly stable in 2027 compared to 2026. This before a pivot that is to come in 2028, which is based on the repricing of the vehicles of 2024, and a further improvement in 2029. So no impact on our 2030 objectives. Having said that, Arval is actively managing the environment through lease extensions, international remarketing, and vehicle re-leasing, all shown strong traction. Athlon will also improve the mix, with EVs representing 31% of its fleet at the end of Q3. Importantly, our long-term objectives, as I mentioned, remain unchanged. Used car sales should trend towards zero over time, making Arval's earnings increasingly driven by fleet management and recurring revenues rather than used car sales.
Lars Machenil: At group level, our diversified model also enables us to offset this headwind, notably to strong performance of CIB and the positive revision to our Corporate Center guidance. That is CPBS. If I turn to the third division, IPS, revenues were up 5% thanks to strong commercial momentum, and we are pleased with the solid ramping up of the AXA IM integration. If with this, we move to slide 12 and 13, where I would like to discuss our cost trajectory. If we look at 12, our jaws were very strong this quarter, 2.8 points for the operating divisions and 4.1 at group level. All our businesses, except obviously Arval and Leasing, generate positive jaws between 2 and 11 points. This is something we are particularly proud of, as you can see in the performance of all the businesses at the bottom of the slide.
Lars Machenil: At group level, we are on track for substantial cost-income ratio improvements, still trending to below 56% in 2028, laying a firm foundation for our next strategic plan. If with this, we turn the page, we go to 13, where we show a chart you know well that reflects our cost savings. EUR 200 million this quarter, reaching EUR 540 million year to date. The cost income improvement is particularly impressive in CIB, but we are also very pleased with strong progress in the Commercial and Personal Banking in Europe and Personal Finance. IPS will obviously benefit in 2027 from the significant acceleration in the synergies from AXA IM, and the restructuring charges booked in the Corporate Center will reduce. Let me now take a look at the asset quality and our risk profile on slides 14 to 16.
Lars Machenil: Fourteen, where you see that the cost of risk stands at 39 basis points this quarter-over-quarter and year-on-year. Compared with last year, the stage 3 provisions, so the ones that are really linked to non-performing loans, are lower due to a specific file a year ago. Moreover, we did not benefit from stage 2 releases as we did last year. So intrinsically, that is the evolution. So stable in basis points, but intrinsically an improvement on the S3. Bar an unforeseen step up in geopolitical tensions, we anticipate the cost of risk to be below 40 basis points over the year 2026. If we turn to slide 15, we remind you of our diversified risk profile by sector, but it is also true by geography.
Lars Machenil: As you know, but we repeat that we do not depend much on France, given the European and international profile of our client franchise. Given our platform, we are more and more international every year. If I illustrate, 10 years ago, French banking was 20%, now it is 10% and below. Moreover, our exposure to French sovereign is very limited, with only EUR 3 billion of sovereign exposure that is at fair value via OCI, not even P&L. If with this, we end the review on page 16, and you will see that both our Commercial and Private Banking in France and Belgium normalize from a low base, and Global Banking also normalizes from a high base, what I mentioned earlier a year ago. Overall, we remain comfortable with our strong asset quality, which is stable at 39 basis points as mentioned before.
Lars Machenil: If with this, we leave the cost of risk and we go to the capital. If you can move to slide 17. Our Common Equity Tier 1 reached 12.9%, and this evolution of 10 basis points comes from the following. First of all, there is 40 basis points that is added the net income, net of RWA growth. Of those 40, there is 25 that is called return to shareholder. Then there is 10 basis points related to the OCI movement, given the spreads that we observed since August in the banking sector. Then there is 15 basis points from the acquisition of Athlon. Intrinsically, that leads to this evolution.
Lars Machenil: As mentioned in Q4, we will continue to strengthen the net income, but we will also benefit from the disposal of BMCI, that is to generate around 15, one five, basis points. As well, we will see our accelerated capital generation and RWA optimization, which typically falls at year-end. As such, we expect to exceed the level of 13% at year-end. All this paves the way for accelerated distribution. As such, it is stepped up earnings, stepped up capital, and therefore we feel comfortable to launch the share buyback on 10% of the full-year results already in November, next week. With this, as a reminder on slide 18, there is actually even more to come.
Lars Machenil: As the SIU, the Savings and Investments Union, which is, and in particular, the securitization framework, are progressing very well and are likely to get into force at the beginning of 2027. I remind you that this Savings and Investments Union represents a significant opportunity, on one hand for BNP Paribas, but also for CIB, where the originate and distribute model of CIB, but also the asset gathering platform of IPS further strengthen with BNP Paribas Asset Management new and leading alternative asset capabilities. That is not only the fact to CIB and IPS, but also CPBS is very well-placed to increase with all these levers its financing in the real economy. Let me terminate with the Corporate Center on slide 21, where once again, we have improved the guidance of gross operating loss after a nine-month performance that was better than anticipated.
Lars Machenil: We therefore, as I mentioned just a bit earlier, we adjust our gross operating income trajectory from EUR -1.2 billion, and we improve it by EUR 200 million to EUR -1 billion. I will now hand it back to you, Jean-Laurent.
Jean-Laurent Bonnafé: Thank you, Lars. So to conclude, Q3 2026 results are a very clear illustration of our acceleration. We are delivering strong balance and resilient earnings growth with Group revenues up 9.5% and an excellent cost-income trajectory. Our 2028 return on tangible trajectory is on a fast track supported by strategic levers that are already being executed. Our earnings growth is accelerating towards a CAGR of more than 10% over 2025, 2028. And with our CET1 trajectory, we will consider additional distribution on an annual basis. On 2 February 2027, we will announce the main targets of our next plan taking us to 2030. We are well advanced in our preparation with top-down and bottom-up processes now aligned. We will provide you with our divisional trajectory, and we will continue throughout 2027 our series of deep dives, starting with CIB on 25 February. This concludes our presentation.
Jean-Laurent Bonnafé: We will now be happy to take any questions.
Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. I would like to remind you to please limit yourself to a maximum of 2 questions to ensure that all attendants are able to participate. Again, please press star one to ask a question. First question is from Delphine Lee, JPMorgan.
Delphine Lee: Yes. Good afternoon. Thank you for taking my questions. First of all, just a very quick clarification on Arval on what you said, Lars. So you are expecting the GOI, gross operating income, to be stable in 2027 versus 2026 before improving in 2028. I am just wondering because we are obviously seeing a halving this year of the GOI, so just the swings are pretty large. If you just clarify that. And how much recovery should we expect for 2028 and 2029? The second question is on just maybe thinking about your guidance of growing the revenues in commercial banking in the Eurozone by sort of more than 5% per annum. Do you see any kind of risk to that guidance considering the more challenging environment, especially in France? And the rate environment as well, could that impact volume, deposit growth, and the deposit mix? Thank you very much.
Lars Machenil: So yes, Delphine, thank you for your question. Indeed, what you have seen is that if you look at Arval, the GOI has been impacted in Q3. What you also saw is that as of now, we have Athlon that is basically being added. That is why we basically say there has been an impact in Q2 and Q3. That impact will be somewhat limited, but Athlon is coming in. Overall, indeed, you understood well that the gross operating income will be stable in 2027 compared to 2026. Again, as I mentioned, within 2027, there are other elements that will perform better. In particular, you have seen that our CIB is at a higher run rate, and I requalified our Corporate Center to be improved by at least EUR 200 million. Those are elements that basically compensate those two effects.
Lars Machenil: On the Corporate and Personal Banking in the Eurozone, I remind you that our growth is stemming from several reasons. The intrinsic growth that we guided for, a minimum of 5% growth year after year, is basically stemming from the redeployment of the non-remunerated deposits. That redeployment depends on the rates. The rates have a tendency to go up, so intrinsically that would be even better. We did not take into account in that guidance any further stepping up of the deposits. That is why we feel comfortable, given the environment where we are, the interest rates where they are, that we will deliver on this 5%, which could be even higher if there are further flows of deposits coming. In our guidance, we did not count on that. Those would be the two answers, Delphine.
Delphine Lee: Thank you.
Operator: Next question is from Tarik El Mejjad, Bank of America.
Tarik El Mejjad: Hi, good morning. Just on revenues, please, and one of the compensating factor you mentioned on Arval was the CIB. You had amazing quarters for Q2 and Q3 in equities and prime services, and I want to understand how much of this we can extrapolate, because it coincides with your, I would say, end of project of rebuilding or building the equity business. How much is it just lifted by the market, and actually, how much is the higher run rate potentially you can deliver in this division? You are suggesting that this come as an offset to Arval. Can you maybe explain a bit what's the upside there from in 2027? Because that comment was made in of 2027, I believe. The second question, still on CIB and global banking.
Tarik El Mejjad: There's been, again, clearly a step-up as well in the revenues per quarter, and that also came with higher RWA growth. Is this actually fully compensated by the SRT program you're launching of 10 to 20 bps or 10 to 15 bps per year? How confident you to see good ROE on this growth of revenues that's clearly needed to deliver on the targets. Thank you.
Jean-Laurent Bonnafé: Well, on CIB, it's a platform we've invested in since many years. It's growing platform. The platform is taking market share, I would say, worldwide. It's not just a European platform. We're posting excellent results in the US, throughout Asia, and of course throughout Europe. Global markets, equities are to some extent volatile businesses, but those market shares are going to stay, and we will continue to grow and to expand. We have the technology, the offering, the services, and now I would tend to say we have the right franchise. This is the way we position that platform looking at corporate banking within CIB. Last year, starting with the Q2, Q3, because of a number of elements, we entered quite a weaker environment. Now we have repositioned the platform. Again, it's a global platform.
Jean-Laurent Bonnafé: It's not only Europe, but it's also the US, Americas, and Asia. We are doing extremely well. We have exactly the range of services, comprehensive worldwide to service those large caps. Yes, we are having, in our trajectory, already positioned those risk weights that are necessary to sustain that growth. But remember also, this is also an originate to deliver platform. We believe that this is going to bear a very positive support in the years to come, especially in Europe, where you will see this phenomenon accelerating. As of today, it's a bit shy, but it's coming. Again, for this, not only for BNP Paribas globally, but for the platform, for CIB, it's going to be one of the winning factor for the next years. The platform is there. It's growing machine.
Jean-Laurent Bonnafé: It is not only posting very good results for Europe, but now it is also becoming something, I would say, larger. Asia is full of potential, and of course, the US and Americas globally.
Lars Machenil: Tarik, it is really an illustration of our originate to distribute. If you look back, basically the risk-weighted assets at CIB, they have not moved over the last years. Indeed, there is a bit of phasing within the year. Yes, there has been a pickup in Q3, and all of this will be offloaded in Q4. You know how this goes. The typical spikes in the securitization are year-end, so we are really on track to offload all that growth.
Tarik El Mejjad: Thank you.
Operator: Next question is from Giulia Miotto, Morgan Stanley.
Giulia Miotto: Good morning.
Lars Machenil: Good morning.
Giulia Miotto: Thank you for taking my questions. The first one is on slide 7. I understand there will be a decision once a year on excess capital distribution. Can we expect this for Q2, I would guess, or full year results? Secondly, does this mean that probably you will stick to 60% payout and then everything will be in excess once a year? Can we assume that the excess will be mostly distributed in buybacks because that's the most accretive way? Sorry, a lot of small questions on capital. Secondly, just a more top-down macro question. We have seen cost of risk miss this quarter. If we look at the macro indicators for France, they're slightly deteriorating. If we look at the bankruptcies, if we look at the unemployment.
Giulia Miotto: Can you help us make investors comfortable that there is no deterioration in asset quality coming? Thank you.
Jean-Laurent Bonnafé: So on buybacks and capital distribution, it is very simple. I cannot tell you precisely what is going to be the rule of the game for the next plan, but this has to be decided by the board in the coming weeks. But we increased regularly the regular payout since 15 years. So we used to be at 30%, the current plan we are at 60%. And clearly, the bank, the company, growing faster, being more efficient, being more competitive, and profitable, will originate more free cash flow and free equity. So, this is a good reason to increase the regular, I would say, payout. So one possibility is to say we go from 60% to 70%, and on top, we are going to return everything that is above 13%. Or you can say we stay at 60%, and you return everything that is above 60%. It is basically just the same.
Jean-Laurent Bonnafé: Probably the best way is to say 70% because it gives additional confidence, and the upgrade is going to be most probably through buybacks. This is quite obvious. So the trajectory could be moving from 60% to 70% out of which 20% buybacks. And on top of that, excess equity that will be created over the plan. So you can do the computation. But if we are at more than 13% return on tangible equity, in 2028 and 15% in 2030, clearly, 70% is throughout the period is a kind of a minimum. There is way for something that is above, meaningfully above 70%. So this is the situation. It will start based on the results of 2026 because at the end of the year, we will be above 13%, so there will be some excess equity in the system to be distributed. One day, we will have some additional disposals.
Jean-Laurent Bonnafé: Sooner we will close the plan. So this will come on top of it. So this is very much the way we are positioned. On the situation in Europe, and let us say our two major franchise, Belgium and France in Europe, and commercial banks, we are having really the best franchises. So we are very well-positioned, and we are absolutely not, I would say, afraid by the new cycle. Cost of cash, cost of money is higher, of course. The franchise is extremely strong and solid, and we do not anticipate a meaningful impact based on that situation. So this is the vision we are having for the years to come for those businesses through the commercial business we have in short term.
Operator: Any other questions?
Operator: Next question is from Sharath Kumar, Deutsche Bank.
Sharath Kumar: Good afternoon. Thank you for taking my questions. Coming back to Arval, I estimate around EUR 300 million of used cars losses in Q3. Can you confirm this figure? You also spoke about few measures to address residual value risk, but given fleet growth has been so much steep in recent years, what more can you say to make us feel comfortable? On Athlon, can you quantify the restructuring costs and its timing? Those are my questions on Arval. Secondly, on Personal Finance, this is one more segment where your current revenue run rate is slightly below the midterm guidance. How should we think about the impact in the wake of higher funding costs and likely lower loan generation? Also, are you confident here of maintaining cost of risk around 150 basis points should there be further deterioration in the macro? Thank you.
Lars Machenil: Would you just rephrase your last question?
Sharath Kumar: Yes. Personal Finance, I know current run rate is below your midterm guidance, so how should we think about the impact of higher funding costs, maybe likely lower loan origination? Also, are you confident of maintaining cost of risk around 150 basis points should there be further deterioration in the macro environment?
Lars Machenil: All right. Listen, on Arval, you can deduce that we do not give guidance explicitly on the used car sales because, as we mentioned before, they also give a bit of a read on what the competitor can lead into it. If you take our growth that you see, you can assume that this is the impact in Q3, which will be lower again in Q4 given Athlon stepping up and rolling forward. On the fleet growth, how can we give you comfort that the pivot in 2028 will be there? It is basically that we have the overall pricing as of 2024 has been materially adapted. That is why we feel comfortable that the pivot will be visible in 2028. On the integration cost with respect to Athlon, over that period, there will be EUR 170 million that is there to come.
Lars Machenil: When it comes to personal finance, you know that we have been restructuring it on different kind of products. That still means that whenever there is a pickup in the cost of financing and the rest, we will further adapt the pricing and the origination. That is why, in our overall plan, we feel comfortable with the trajectory that we have given. Of course, as we have always done, we will adapt according to the situation.
Sharath Kumar: Thank you. Can you reconfirm the CET1 for Athlon?
Lars Machenil: 170.
Sharath Kumar: Thank you.
Operator: Next question is from Jacques-Henri Gaulard, Kepler Cheuvreux.
Jacques-Henri Gaulard: Yes. Good afternoon. To the first one, I think you have announced this quarter that you are merging Floa with Cetelem. Is it a sign that you have been a bit disappointed by this acquisition, and basically, what are you going to do with the brand? The second question, sorry, back to Arval. You have changed the CEO now coming from the most significant competitor of Arval in that market. I wanted to know what was their mandate, and piggyback on the former question, can we assume now that you are just not going to grow this market very much over the next 2 to 3 years? Thank you.
Lars Machenil: Mm-hmm. I do not know exactly, but Alain van Groenendael must be 66 or 67 or 65. So it is a-
Jacques-Henri Gaulard: He was a CEO at Arval.
Lars Machenil: So it is a planned move. It is something that is prepared since a couple of years, so there is nothing new, nothing that can be, I would say, linked from the current status of the business on this evolution. Again, nor Arval, nor BNP Paribas are responsible for the disruption in terms of geopolitics and cost of energy, just to make it very simple. Looking ahead, we have been through that consolidation with Athlon to have, I would say, an even bigger critical mass. This is very important in that type of a business. Clearly, especially in that type of a cycle, we need to opt for the most disciplined approach. But it would have been just the same with Alain or not with Alain. This is just a simple fact. It is a new environment, and he is moving. He is staying as the chairman. He is a great guy.
Lars Machenil: We count on him. There is a new person coming. Those transitions are always complex, but it is going to be just the same. The only point is the cycle is different. We have now reached a critical mass, and now due to that factor and due to the cycle, we will opt, as you said, for a very strict discipline, and these have started already this year. So I hope I have understood your point.
Jacques-Henri Gaulard: Absolutely. Thank you for your answer.
Lars Machenil: On Floa and Cetelem. Listen, the thing is, typically, when we have an acquisition like Floa, which is particularly in the new technology, we put it or we leave it in standalone to develop all the technologies. At the moment, this becomes in a maturing phase, then we merge it with the other activities. So there is nothing else to look into that.
Jacques-Henri Gaulard: Thanks a lot.
Operator: Next question is from Andrew Coombs, Citi.
Andrew Coombs: Good afternoon. First question, just to follow up on equities. One of your peers this morning called out a 33% increase in client balances. I do not know if you could just talk to your client balances, what you see in terms of increase year-on-year, where you stand today, and also what you are seeing on the margins on that business as well, please. Then the second question, just on the French deposit migration. Small increase in term, but could you just remind us, for every 1 percentage point move to term, what is the impact on NII. Thank you.
Lars Machenil: Can you rephrase that last question?
Andrew Coombs: Yeah. I was just saying in the French retail business, you have seen a little bit of deposit migration. The proportion of deposits sitting in term or time deposits has crept up by 1 percentage point. Just so we can think about the impact going forward, could you remind us of the sensitivity of that migration to net interest income? For every 1 percentage point migration, what is the impact on NII?
Lars Machenil: Right. Listen, first on your question on the prime brokerage. You have seen that the growth has been quite strong, and typically the prime brokerage does hardly consume capital. It consumes somewhat balance sheet, but the overall consumption of the balance sheet remains very contained. If you look at it on the situation where we are, we are hovering around EUR 300 million, which is typically what we do. When you look at the non-remunerated, they are basically stable in Q3. There might be a flow in the remunerated one, but the non-remunerated are stable, and the impact of 1 point is basically EUR 25 million. EUR 1 million is EUR 25 million.
Operator: Next question is from Pierre Chédeville, CIC Market Solutions.
Pierre Chédeville: Yes, good afternoon. One question regarding more globally your specialized businesses in terms of capital allocation, because we all see that these activities are not the most profitable ones in your business model currently. We also feel structurally speaking, if we compare with your beautiful platforms you have now in CIB and IPS, notably. I was wondering if you could consider that a reduction of the part of capital allocated in these businesses should be an option. For instance, continue to restructure, for instance, Personal Finance that you have done in the past, but you could continue. We have some rumors about that. I do not ask you to comment, but we know that you have some part that could be sell.
Pierre Chédeville: I was also a little bit. I understand that it is a scale business in leasing, but we have one of your competitors who clearly said recently that it does not want to allocate more capital on this business currently. That was my first question. My second question is regarding OCI. Could you be a little bit more clear regarding the evolution of the -10 basis point? I did not catch it correctly. What could be another impact in the coming quarter? How do you see that evolve? Thank you very much.
Jean-Laurent Bonnafé: Looking at personal finance in particular, as you said, we have continuously restructured, adapted the business in the past years. The next plan is going to be very much the same. We have to extract a better return on tangible equity from that platform. The situation is quite different depending on the different markets. Not everything are exactly just the same. We are also looking at that situation this way. You can count very much on us to allocate what is, I would say, relevant, and optimize the rest of the platform. This is simple. This is the strategy, and it is really part of the next plan. We will continue the way we started years ago. Then on the question with respect to the OCI, the easiest thing to say, if you would look at that, there is an evolution.
Jean-Laurent Bonnafé: It is, I think, the European sovereigns. If there would be another 50 basis points spread widening, that would have a 10 basis points impact on the CET1. That is kind of the sensitivity.
Pierre Chédeville: Thank you.
Operator: Next question is from Stefan Stalmann, Autonomous Research.
Stefan Stalmann: Good afternoon. Thanks for taking my questions. I have two, please. The first, I am afraid, goes back to Arval. We obviously have quite a sustained setback in industry conditions here, also listening to how you describe it. Is there a risk that the residual value in Arval actually has to be impaired at the end of the year? And maybe could you give us a sense of how big this residual value actually is? The second question is, if I look at your business opportunities right now, you can make a new French mortgage and write it at maybe 3.5% or so, or you could buy a 10-year French government bond at 5%. Does that have any impact at all about how you think about your balance sheet and your business opportunities? Thank you.
Jean-Laurent Bonnafé: First of all, on Arval, I understand your point. When I said you take the spread and add term, the question is you have some volatility for the moment that makes it lower, but we anticipate
Lars Machenil: that at the end of this period, the cars will again be sold. Again, indeed, the question is should, at some point in time, be the impact negative when you would sell it, which would trigger an impairment? At this stage, we are still very far above that level, so we don't see an impairment on the horizon. When it comes to the sovereign, listen, our overall stance is that just like for every investment, we want to be diversified. Let's say diversification, meaning typically if we have something, we don't want to be much bigger than 1% of the overall balance sheet. We have a EUR 3 trillion balance sheet, so let's say a EUR 30 billion below it is where it should be. We are not going to stack up truckloads of it, but we are at EUR 20 billion, in the overall sense.
Lars Machenil: So we will see what the opportunities are within that, but we are not going to materially step it up given our allocations.
Stefan Stalmann: Thank you very much.
Operator: Next question is from Chris Hallam, Goldman Sachs.
Chris Hallam: Yeah. Thank you for taking my question. So first, on Arval, I am just trying to stress test 2027 a little bit. Does the recent performance change how you think about the right cost base for the business, the level of integration synergies, et cetera? And is the combined entity disproportionately exposed to any specific brands? I know you have several OEM partnerships, and I guess within the autos space, there is a broad UCS problem, but there is also some fairly big OEM market share shifts. So I just wondered whether you are at risk of being on the wrong side of any of those changes on the volume side as well. And then second question, should we see a higher payout ratio as a reflection that the group has become less capital-intense from a growth perspective?
Chris Hallam: In the coming plan, if you have to choose between size and ROTE, are you going to go for returns? In that context, which factors would determine your mix between divs and buybacks and ordinary versus extraordinary? I think you talked about it a little bit earlier, but I just wanted to triple-check on that.
Lars Machenil: I'll take Arval first. If you look at it, the thing is, what we mentioned going forward is that, as of 2024, we clearly adapted the pricing of the vehicles. From that point of view, we feel to have that under control. On the diversification, it is very diversified. Again, you might think that we bought with Athlon, we bought the company from Mercedes. But again, Athlon was a company before, so it is very diversified. This is things that we validated during due diligence. So we, again, went through our portfolio, their portfolio, the combined portfolio. So we feel at ease when it comes to that. On the payout, Laurent, I don't know if you want to give some color on the balance share buyback payout.
Jean-Laurent Bonnafé: Probably, as I said, probably still to be decided. Additional distribution payout compared to the current plan will come probably, again, from additional buybacks. This is simple. This is obvious.
Lars Machenil: Chris, just to give you some color. We had in the past, so if you take 100% is the earnings we generate, there was 60% that returned to shareholder. There is typically 20% that we use to grow and so forth. Then the other 20% in the last couple of years has been used in this avalanche of regulatory supervisory kind of elements. That is basically what has fallen away. So that is where we have more room. On top of that, our profitability will be stepped up. At the same time, we have become a very complete business. Look at CIB, look at the things we have done with IPS. So intrinsically, we believe that we have the good footprint to grow very profitably. We will be more and more profitable.
Lars Machenil: That is then how you should read the return to you, to the investor.
Chris Hallam: Okay. Thanks very much.
Operator: Gentlemen, we have no more questions registered at this time.
Jean-Laurent Bonnafé: Thank you for your attention. Once again, we will deliver the 2026 target and even more. We are well-positioned for the next plan. Capital distribution will go up. We are prepared. The efficiency plan is almost up and running already. We have well-positioned businesses, good risk profile, let us say, globally, as illustrated in Q3, the group is in a very good shape. Thank you so much. We will see you soon, and in particular on 2 February next year. Bye-bye.
Lars Machenil: Thanks.
Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
