Credit Agricole Sa

Good day and thank you for standing by. Welcome to the Credit Agricole Q3 2021 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. I would now like to hand the conference over to your speaker today, Jérôme Crévé, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon, all of you. It's a pleasure for me to walk you rapidly through the document we've published this morning and to present you the main features of our results. Let me go directly to page four where you have the main figures related to Crédit Agricole Group globally. You can see that for this quarter, we post a net profit of around 2.2 billion euros, both on a stated basis and an underlying basis as well. It's an increase of 25% on a stated basis plus 15.6% on an underlying basis. For the first nine months of the year, the net profit is 6.7 billion euros on a stated basis and 6.2 billion euros on an underlying basis. Maybe three additional comments on this page. First, you can see that this quarter, the difference between underlying and stated is very tiny. Second point, this high level of profit, which is a record high level actually, for a period of nine months, is reached again, I would say, for the same virtuous mechanisms, i.e. an increase in the top line, generating a strong and solid increase in the gross operating income and a significant decrease in the cost of risk. Let me go now to the figures related to Crédit Agricole SA itself where you will see more or less the same trend. The net profit at 1.4 billion for the quarter, both on a stated and underlying basis. It's an increase of 43% on a stated basis and plus 27% almost on an underlying basis. And for the first nine months of the year, The net profit is at 4.4 billion euros on a stated basis and 3.9, almost 4 billion euros on an underlying basis. It's an increase of close to 38%. Let me go now to the main messages that we want to highlight this quarter. I think, again, we have a very robust commercial activity and we continue to capture new customers every quarter. This is generating a strong increase in the revenues and a strong increase in net profit. And the profitability stands at a high level, again, 13.1% return on tangible equity for Casa over nine months. And this is leading us to confirm our friendly approach towards shareholder remuneration with, as you know, a second share buyback operation, which is on its way nowadays which is going to account for an additional 500 million euros. The full unwinding of the switch mechanism will take place this very quarter on November the 16th, i.e. next week, which is one year in advance as compared to the previous commitments that we had on this matter. And then we confirm the intention of retaining the remaining 40 cents of dividend a share that we continue to owe to our shareholders after the skipped 2019 dividend. And this is going to be done through a top-up on the coming next two dividends. Last point maybe on this stage, we confirm our very strong commitment to what accompanying the transition to a decarbonated world and we will give some highlights on this very important topic in a dedicated press conference that will take place on December the 1st in three weeks time. Let me go now on page eight where you can have some figures illustrating what I just said, i.e., a strong level of customer capture and also a very good level of activity, which is illustrated with three items here, the loan production of the retail banks in France, the revenues coming from the sale of new P&C insurance policies, and the rebound in production of new consumer loans. But of course, we could have illustrated this trend with many more figures. Let me go now to page nine, where we have some indications regarding the evolution of the top line this quarter and on the first nine months. This quarter, the increase in the top line is very dynamic, plus 7.6% on the quarter and even plus 9.1% for the first nine months of the year. And it's also a very strong evolution as compared to the same period in 19, which was the period pre-pandemic. Even if we restate those figures from some scope effect, we still have a very dynamic evolution of the top line, plus 4.4% Q3 on Q3. and plus 7.3% nine months on nine months. Maybe one additional comment on this page and you will find details in the appendix of the document. We continue to have a progressive modification of the breakdown of our revenues to what the higher share dedicated to fees and commission as compared to net interest income. All in all, the evolution of the top line between the first nine months of 19 and the first nine months of 21 represents an additional 1.7 billion euros of revenues. Coming now to the expenses on the cost base on page 10. what we can see is that there has been indeed an increase in the level of cost this quarter and on the first nine months of the year. But if, again, you restate the figures from the scope effect, and the scope effects have been indeed quite significant this quarter with, for example, the integration of Creval with also some technical adjustments regarding the accounting of Crédit Agricole Consumer Finance Netherlands and some additional items. So if we restate the evolution of the cost base from this scope effect, we post this quarter an increase of 3.8% of the cost base and plus 3.4% on nine months, which means that on both periods, we continue to have a positive growth effect. Maybe one last point on this cost base matter. The increase on the quarter represents a little bit more than 100 million euros, we stated from the scope effect, and almost half of this increase is triggered by some additional provisions related to compensation, variable compensation, be it bonuses, individual compensations, or also collective remuneration, especially in entities with a large number of employees like LCL. On page 11, we illustrate what is really a key feature of the business model of Crédit Agricole SA in the last four, five years. Here we provide the figures since 2017. What you can see is that every quarter, be it the first quarter of the year, the second quarter, the third quarter, we've been able, since 2017, to increase the revenue base, and at the same time, we've been able to decrease quite steadily the cost-to-income ratio, and if we look back to the first nine months of 2017, and we compare with the present figure, we've actually gained almost five percentage points in the cost-to-income ratio. Going now to the asset quality and the cost of risk, what you can see on page 12 is that the asset quality continues to be very, very strong, both on the perimeter of federical SA and for the regional banks leading to a very impressive level of 2.2% of NPEs for the group globally. And as we've continued to be prudent in terms of provisioning, including the fact that we've added some further bucket one and bucket two provision again this quarter, the coverage ratio of our non-performing exposures with the different categories of provisions that we have in our balance sheet continue to grow significantly. We've reached now a level of 75% on the perimeter of CASA and 87% for the whole group. On page 13, you can see that the cost of risk is decreasing very sharply as compared to Q3 20. It's more or less stable as compared to Q2 21. And as I said, it's made not only of stage three provisioning, but also some slight adjustment, positive adjustment on the Stage 1 and Stage 2 provisioning in connection with some sectorial approaches that, as you know, are performed in the group under the local forward-looking approach. We haven't changed yet our macroeconomic scenarios, and we will do that in the fourth quarter, meaning that probably this is going to trigger some changes in the level of stage one and stage two provisioning end of this year. This is leading to the evolution of the net income group share that is presented on page 14. And what you can see is that, as I have mentioned already, the net income group share is sharply up, both on the quarter and for the first nine months of the year. And if we look globally on the first nine months of the year, you can see that we've been able to improve the net profit by around 1.1 billion euro. in nine months, which is the combination of a very sharp increase in the gross operating income plus 900 million euros, a significant decrease in the cost of risk minus 1.2 billion euros and of course, some negative elements, mainly the corporate taxes up around 1 billion euros. So this explains how this increase of 1.1 billion euros in the net income has been performed, and it's really a balanced combination between the gross operating income and the decrease in the cost of rates. On page 15, this slide that we've already presented with the results of the second quarter, but again, The trend is very stable and very steady. We are posting a return on tangible equity, which is not only at a high level and significantly higher than last year, but also significantly above the average of our peers. And we are, again, close to 3.5 percentage points. above the average of the sample of 10 European banks that we've continued to follow this quarter. On page 16, just to look back on all the elements regarding shareholder remuneration that took place or that are going to take place this year, just as a reminder, two share buyback operations. representing above 1 billion euros and around 30 bits of CET1 invested. Two trenches of switch dismantling, one that took place beginning of March and the second one that is going to complete the unwinding middle of November this year. All in all, this represents 80 bits of CET1 invested. series of operations, the share buyback is obviously going to reduce the number of shares. The second series of operations, the switch dismantling is going to generate an improvement of the net profit. So all in all, this is positive for the earnings per share. And in addition to that, we confirm our dividend policy, which is going to allow us to fully repay the skipped 2019 dividend in three installments, I would say. The first one, 30 cents a share took place beginning of this year, and the next two are going to take place alongside the payment of the normal dividend for 21 and 22 for the remaining 40 cents. So all in all, over the course of the present medium-term plan, we will have respected fully our commitment to pay to our shareholders 50% of the attributable profit in cash. Let me go now to a series of additional highlights, business line by business line, starting on page 18 with the asset gathering and insurance business division. On page 18, what you can see is the evolution of the assets that we manage. They are, of course, sharply up, thanks amongst other elements to a positive market effect. And also, this business division is showing a very strong increase in its contribution to the net profit of the group, plus 24%, close to 25% for the quarter. Specifically on the insurance activities, we have had a very buoyant level of activity on the quarter with strong inflows in the savings and retirement business and inflows that are more and more skewed towards unit link, but also a very strong level of activity in PNC and protection businesses. A strong increase in the contribution of this business division to the profit of the group, plus 13% this quarter, with a combination of a softer level of revenues, and we can comment a little bit more in depth this issue if you want further on during the Q&A session, and also a very low level of corporate tax, which is in connection with the realization of some capital gains, long-term capital gains that bear a low level of corporate tax. On Amundi and the asset management activities, a very good quarter in terms of commercial activity with significant medium and long-term inflows, excluding the joint ventures where we have had a one-off outflow. and a very strong level of revenues, be it management fees or performance fees. And again, a very good level of cost to income ratio for Amundi as is now a common feature for this entity. So contribution to the net profit of the group, which is very significantly up, plus 44% on the quarter. On the large customer division globally, You can see that the revenues are slightly down as compared to 2020, minus 2.5%, but sharply up as compared to 2019, plus 9%. The costs are well managed, and the contribution to the net profit of the group is significantly up, plus 33%. Specifically on CASIB, on page 22, there is a very balanced combination of a high-performance on the financing activities where revenues are up 13% and a softer performance in capital market activities because as is the case globally for the market, fixed income activities were weaker this quarter globally in the market. But if we compare the revenues in our capital market and investing banking activities in Q3 as compared to Q3 19, we continue to be up in terms of revenues. The cost base is slightly up but very moderately in this context of good operational performances and the cost of risk is very massively down leading to a very significant increase of the net income group share of CASUB again this quarter plus 35%. Specialized financial services division on page 23 starting with the consumer credit activities. The production of new loans is back to the level of 2019. The managed loan book has been a little bit penalized by the disruption of the supply chains on the car-making business, penalizing the development of the car financing business in which we are very active. But besides the consolidated loan book is at its highest level since 2014. The PNL, excluding some technical restatement for consumer finance, is very positively oriented with revenues up costs well managed cost of risk down and all in all the contribution that is improving by a further seven and a half percent this quarter on the leasing and factoring activities good quarter of activity revenues are up cost of risk is down and this business division is making a significant acquisition is announcing a significant acquisition this quarter It's the acquisition of Olin, which is a professional equipment leader that is going to complement the scope of offer of CALF. Going now to retail banking activities and starting with LCL. We have a very high level of activity, which is fully confirming the rebound of the economy in France. with a record level of production of new loans, especially home loans, customer capture, savings, customer savings increase, and this is leading to a significant increase in the top line, plus 5%. Cost time is slightly up, but it's mainly explained by this additional provision that we have booked for future variable collective compensations. Intéressement et participation, as we say in French. And with the cost of risk, which is sharply down, this is again leading to a strong increase in the contribution of LCL to the net profit of the group, plus 30%. International retail banking, starting with Italy, we first try to read across these figures in order to assess the, I would say, the performance of the historical Crédit Agricole Italia. And on this perimeter, the activity is up and the revenues are slightly up. The cost of risk is stable. The cost, excuse me, the cost is stable and the cost of risk is sharply down. So the contribution of I would say historical perimeter is significantly up, plus 44% at Q3 and Q3. In addition to that, this is the first quarter where we have Creval completely integrated in our perimeter and Creval represents this quarter a contribution to the top line of 145 million euros and a contribution to the net profit of an additional 15 billion euros. This quarter, no one-off related to the acquisition of Creval. You remember that we've booked the first estimation of the badwill linked to Creval end of June and the purchase price accounting will be completely finalized in the fourth quarter. So nothing accounted for on this subject this quarter. For the rest of the international banking, retail banking activities, excluding Italy, I would say the continuation of the normalization after this low point that we had reached middle of 2020 due to the pandemic the pandemic and due to the monetary answers to the pandemic in the different countries where we are active. So revenues are picking up. Again, there is a specific accounting issue this quarter, if you look at the growth figures, because we have declassified our Serbian activities, which are now accounted for under IFRS 5, but restated from this, again, scope effect, revenues are up, cost of risk is significantly down, and the contribution of this business division The net profit of Casa is very sharply up plus 50%. Corporate center this quarter, nothing much to mention besides one point, which is that as the level of the corporate tax rate, the average level of the corporate tax rate represents a revenue and not a cost for the corporate center. And as the average corporate tax rate that we have this quarter is down and is especially low, the level of tax product this quarter for the corporate center is lower than expected and lower than the average, which explains the slight deterioration of the P&L of the corporate center this quarter, but nothing structural here. Let me go now to the regional banks of Crédit Agricole complements the overview of all our activities within the group. You will find more or less the same trends as the one we've seen at LCL with a very dynamic level of activity and also a good level of customer capture, more than 900,000 new customers captured in the first nine months of 2021. A significant increase in the loan books An acceleration also of the digitization of the banking channels that we have with our customers. You know that it had a first acceleration during the pandemic and after the end of the different lockdowns, instead of, you know, fading away, it continues to be very dynamic and the customer adaptation of those devices is really improving. The top line is up 3%. The costs are very well managed. And the cost of risk is low. It's increasing sharply as compared to Q3 20. The Q3 20 was completely abnormal. We've mentioned that and commented that one year ago. And so in terms of absolute level, the cost of risk in Q3 21 is very low for the regional banks of Freddie Agricoles. Let me go now to the capital position, starting with the evolution of the risk-weighted assets. I would say that globally this quarter, there hasn't been any significant evolution in the level of risk-weighted assets, neither on the perimeter of CASA nor on the perimeter of the group globally. Some slight increases linked to the development of the business, both within the large customers division and within the regional banks of Crédit Agricole and no regulatory effect this quarter either. So it's a very, I would say, and straightforward quarter in terms of evolution of RWA. This is leading to a further increase in the levels of solvency for CASA at 12.7% and for the group at 17.4%. For CASA, of course, this is before The effect of the two operations I've just mentioned earlier, i.e., the second share buyback operation and the switch unwinding. All in all, these two elements are going to represent a hit on the solvency of CASA of around 70 to 75 bps, which will be taken end of this year, so in Q4. In addition to that, in Q4, we will have the effect of the acquisition of Lixor, around 15 bits. The acquisition of Olin, around five or six bits. On the other hand, we will have the benefits of the completion of the acquisition of Creval. because you know that we've integrated only the RWAs of Creval end of June, and we will now integrate in our capital position the badwill accounting, so around 10 BIPs. And we will have also the benefits of the capital increase that is proposed to the employees, and that will represent around 5 BIPs of additional capital. So only all in all, probably globally between five and 10 bps of capital depletion linked to all these operations on the course of the fourth quarter. Liquidity on page 33, nothing much to mention. It's a very ample liquidity position that we have. And so nothing much to comment. Market funding program. completed at around 90% end of October, so it's again nothing much to comment and nothing really significant this quarter. And maybe just as a conclusion of this presentation, we can again insist on the fact that we are having a high level of results, high as compared to the past, but also high as compared to our peers. This is resulting from a very virtuous combination of an increase in revenues and an increase in gross operating income, and also a decrease in the cost of risk. And this is generating a high capacity of, at the same time, financing our development, organic development, and also here and there non-organic acquisitions, and also a strong level of remuneration for our shareholders. Thanks a lot and I think that we can now take your questions.

Thank you. We will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star 1 if you wish to ask a question. And the first question comes from the line of Julia Mioto from Morgan Stanley. Please go ahead.