BNP Paribas CFO Machenil Talks Revenue, Risks, Geopolitics

**SPEAKER_1** (0:02)
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**Guy Johnson** (0:07)
So let's talk about our next guest. BNP Paribas has reported better than expected revenue and profit for the second quarter. Its stock traders, its equity traders, absolutely smashing expectations. Joining us now is Lars Machenil, the Chief Financial Officer, the CFO at BNP Paribas. Lars, always a pleasure.
I feel like I'm going to ask you the same question that I asked you last time around, which is, is BNP just an equity story now? Is the rest of the bank performing as you would like it to? Or are the equity guys just doing what they need to do to keep this bank delivering these kinds of amazing numbers that you're delivering right now?

**Lars Machenil** (0:47)
Well, Guy, if you look at the results, it's basically all engines are firing on all, are basically firing. If you look at it, I mean, all the growth, all of the lines are basically double-digit. So top line is up to 12 percent, gross operating income, so revenues minus cost, minus cost of risk, up 16 percent. Bottom line, given a capital gain, up 33 percent. And again, it is CIB which is doing fine, but it's also the retail activities which are doing fine, and also the IPS, so the asset management and insurance activities which are doing very fine.
And moreover, our common equity T1 is solid 13 percent. We are there 18 months ahead of business. So we are really firing on all cylinders and ready to continue to support the economy. So we are not that one trick pony. It is really the three divisions that are working collectively and that are boosting the result.

**Guy Johnson** (1:44)
Okay, let's just kind of absorb all of that, but talk a little bit about what is happening in equities. The equity numbers are strong and are well ahead of expectations. Due to equity and prime services revenue 1.41, that's plus 43% year on year. Can you just give me a bit of detail, though? I'm curious as to how this breaks down. Equity and prime services. Lars, what are you getting on the prime services side of things? What are hedge funds doing? Where are you seeing the expansion when it comes to the hedge fund? Some of the Wall Street banks like Goldman Sachs, we're talking about a really strong demand for leverage coming out of Asia.
Where are you seeing the prime services business doing well? How does it compare with the rest of the equities business within that portfolio?

**Lars Machenil** (2:32)
Yeah. Well, if you look, our equity and prime services, we are one of the few banks in Europe that have the full scale. So we have cash equities, derivatives, and prime brokers, as you said. That basically having a reach all around the world. If you look at the demand, the demand probably related to the super cycle that we see has been stronger both in the US and in Asia, but it has been strong overall. And as we are present in all of those domains, and we have the capital, the liquidity, the leverage to do so, we are there to accompany that demand. And so that's what we've been seeing. And so we're very pleased to have that complete setup and to be able to follow our clients all around the world, actually.

**Anna Edwards** (3:16)
Lars, good morning. So that's the revenue side of things. I wonder what you're doing on provisions. One line in our report this morning suggests that maybe your provisions have been on the rise, maybe higher than had been estimated and citing geopolitical risk. What is it that you are increasingly provisioning for?

**Lars Machenil** (3:33)
Yeah, listen, if I express the cost of risk as what fraction of my loans do I impair? So I express this in basis points. You have a fraction of the percentage. We clocked in this quarter at 39 basis points compared to 38 a year ago. But if you look at the cost of risk in our divisions, it is basically stable. So intrinsically, with whatever that has been happening, on the divisions, there is no pick up, it is stable. So what is that additional basis point coming from? It's because we took a prudent stand, saying there is some geopolitical uncertainty, and that allows us to take a generic provision for that uncertainty. So that is a provision that we took. If at some point in time, the geopolitical situation would deteriorate, and there would be higher cost of risk, we would use this reserve that we have created this quarter.

**Anna Edwards** (4:27)
And Lars, can I ask you about what's happening with the technology build out, the frenzy around AI and data center rollout, and how we see that evidenced in the business that BNP Paribas does? We heard from somebody at Barclays yesterday who was talking about a golden age for technology right now. So many trends happening at the same time, and so many companies wanting to tap markets as a result. Is this something that you think is happening outside of European banking, or is European banking intrinsic to these developments?