Credit Agricole Sa

Good day and thank you for standing by. Welcome to the Credit Agrigole fourth quarter and four year 2021 results conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Philippe Brassac, Group CEO. Please go ahead, sir.

Well, thank you so much and good afternoon, everyone. Philippe Brassac speaking. First of all, thank you so much for being connected with us. We are very pleased to present our main set of results and figures for both the fourth quarter and the whole 2021. It will be very interesting for me to listen to your questions, and I shall attend the whole meeting. But my only takeaway message is simply the fact that we succeeded to get, as many banks, this very interesting and very excellent results, thanks to the fact that they were absolutely linked to this huge operation, a successful operation. to preserve and to save economy from the consequences of this crisis, of the COVID crisis. And naturally, on the next years, we shall have to drive these shifts from mobilizing about the crisis to mobilize about the the transitions that are useful and necessary all around us. So I stop on this point and I'll actually give the floor to Jérôme Grivet to sum up our different results and try, of course, to answer to your relevant questions. Jérôme, please.

Thank you, Philippe. Good afternoon to everyone. I will start directly with the figures. And starting with the group figure, you can say that you can see on this page that we are posting this quarter and for the full year of 2021, the highest result we ever published for Credit Agricole Group. We stated net income, which is above 9 billion euros for the full year on, again, a stated basis. When it comes to the underlying net income figures, net profit for the full year is eight and a half billion euro and 2.3 billion euro for the quarter interestingly we see that both for the quarter and for the full year we managed to keep a very significant positive joe's effect with revenues much more sharply up than the cost base and the cost of risk is significantly down lastly the cost income ratio at group level improves by close to two and a half percentage points and the solvency at group level further improves with the ct1 ratio which is now at 17 and a half percent if i go now to casas figures on the following page you see more or less the same trends with A net profit, stated net profit for the full year, which is above 5.8 billion euros and above 1.4 for the quarter. And on an underlying basis, close to 5.4 billion euros for the full year and again 1.4 billion euros for the quarter. Just a word on the specific items this quarter, which are close to nil, actually, minus 7 million. It's almost nothing, but it's a combination of huge positive one-offs, which were more or less all linked to the Creval acquisition in Italy, the last positive effect of the Creval acquisition in Italy, Badwill recognition and DTA recognition. And we've to put it in a nutshell, invested the biggest part of this positive one-off into improving the future and recurring profitability of Crédit Agricole Italia. We'll come back on this later on. So this is leading to almost nil globally in terms of specific items. Again, we have a very positive draw between revenues and costs, be it on an underlying basis and also restated from ScopeFX. we have a strong reduction in the cost of risk and all in all, a sharp improvement in the net profit. Cost income ratio is down. Solvency is down. We'll come back also on this later on, but significantly above SREP requirement. And profitability is very strong, above 13% in terms of return on tangible equity. On page seven, I think two main messages. The first one is that having met The 2022 medium-term plan financial target, we are now ready to provide new targets to the market, and we will hand an investor day on June the 22nd this year in order to update the market with new medium-term targets, 2025 medium-term targets. And the second important element is that we are going to propose to the General Assembly meeting to adopt a level of dividend of 1 euro and 5 cents per share. Again, I will describe a little bit more how this figure has been reached. Let me go now on page 8 with an analysis of the evolution of our revenues. I think two or three main ideas on this page. The first idea is that revenues are sharply up both on the full year and on the quarter as compared to 2020. But interestingly, it's also significantly up and even more up as compared to 2019. Bear in mind that actually 2020 was revenue-wise also a very good year. The second interesting item on this page is that if we restate the evolution of the revenues from the scope effect, the main element of this restatement being the fact that Creval has been integrated only in the middle of 2021, we continue to see a sharp increase in the evolution of the top line, of the revenue line. And then the last interesting point is that what you can see is the fact that this revenue improvement on the full year is spread on all business lines. All business divisions have been able to improve their revenues in 2021 as compared to 2020. If I go now to page nine with the cost evolution, what you can see is that the cost evolution is less important than the revenue evolution I just presented on the previous page and it's even more moderate if we restate the cost evolution again from the scope effect what you can see is that actually restated from the scope effect the costs are up only 4.3% Q4 on Q4 and 3.5% full year on full year The explanation of this increase is spread between IT investment and expenses, increase in variable compensation, forex impact, and other items. But nevertheless, both with and without scope effect, we managed to post a very significantly positive Joe's effect on the quarter and the full year. Going now on page 10. we wanted to give a little, you know, a broader horizon in terms of our capacity of generating revenues. And we looked back on the last five years. What we see is that regularly on each quarter, we've been able year after year to improve the level of the revenues. That's the first point. And actually the average growth in the last five years of the revenues is was around 5%, when at the same time, the cost increase was, in average, 2.5%, which means that we've managed to improve the gross operating income by 7.5% year after year, and of course, to decrease very significantly the cost-to-income ratio, which is down 5 percentage points between 2017 and 2021. Going now to the risks. I'm talking about the underlying cost of risk, i.e. excluding the one-off items that we've posted in Italy through this reinvestment of the capital gains and badwill recognition that we had with the Creval acquisition. So talking about the underlying risk, what you can see on this page is that actually the level of risk is very significantly down, both for the quarter and for the full year as compared to 2020. It's the case both for Credit Agricole SA and Credit Agricole Group. The level of risk is also significantly lower than the assumption that we had made when we presented the last medium-term plan. It was 40 bps on the perimeter of Credit Agricole SA and 25 BIPs on the perimeter of Credit Agricole Group globally. And maybe the last and interesting point is that every quarter this year, we've continued to increase a little bit the stage one and stage two provisions, i.e., we've avoided to write back provisions simply on the back of a better macroeconomic scenario. And as you know, we have a methodology that combines the effect of the macroeconomic scenario and some local forward-looking aspects. And actually, each quarter, when the macroeconomic scenario was generating some write-backs of Stage 1 and Stage 2 provisioning, we've offset these write-backs by increasing the local forward-looking. This is leading to the situation which is described on page 12, where we have improved over the year the coverage ratio of our non-performing loans with provisions when the level of non-performing loans was decreasing as compared to last year. And within the global stock of provisions that we have, we've significantly increased between 2019 and 2021 the component linked to stage one and stage two and actually for the perimeter of kaza one third of the 8.9 billion of provision is made of bucket one and bucket two provision this amount has been increased by 1 billion euro since 2019 and on the perimeter of the group globally the increase is 2 billion between 19 and 21 and the amount is close to 40 percent of the 18.9 billion euros of provisions, i.e. we have close to seven and a half billion of bucket one and bucket two provision on the perimeter of the whole group. This is leading to the evolution of the net profit that is described on page 13. Again, what you can see is that there is a significant increase, a sharp increase of the net profit, both on the quarter and on the full year between 20 and 21, but there is also significant increase if you compare 21 to 19. And maybe last point on this page, interestingly, this improvement of the total profit is more or less fueled by two engines. The first one is, of course, the decrease in the cost of risk. But the second one, almost as important as the first one, is the increase in the gross operating income. For the full year, it's 1.2 billion euros of increase of the gross operating income, 1.4 billion euros in decrease in the cost of risk, leading all in all to a 1.5 billion euros of improvement of the net profits. On page 14, we provide again this comparison between our return on tangible equity, 13.1% for the full year 2021, and the average of our peers in Europe. And again, we've managed to keep a very, very significant margin above the average of our competitors. Let me go now to some highlights of what we've been achieving in 21 and actually since the beginning of this medium-term plan, starting on page 16 by a few highlights on the further developments of our business model, the customer-focused banking business model. We've been and we've continued to improve our offers, and there is a lot of examples provided on this page. We've continued to improve the digital experience of our customers. And we've continued to develop our human project, i.e. empowering all the teams locally as close to the ground as possible. This is all in all leading to a further improvement of the customer satisfaction. And we've again provided some examples for the regional banks of Crédit Agricole, for LCL and for the CACF. And this improvement in the customer satisfaction itself is fueling our further growth. In terms of commitment to our societal project for the group globally, Again, we are providing here on page 17 a few examples of the different actions that we've been taking, both for supporting the efforts of our customers in their own energy transition, be it corporate or individual customers, in also reallocating our own financing books from I would say brown assets to a greener set of assets. And I'm pleased to say that a study of Bloomberg stated that we were the only amongst 30 big banks globally to have a bigger green loan book than a brown loan book. This study has been published a little bit earlier last year. And lastly, we provide also some examples of our commitment towards inclusivity and the support to all the population that needs support, be it the families, the over-indebted customers, or the young. On page 18, just a reminder of what we've presented to the press on December the 1st last year, we've presented a series of markers of our commitments towards the climate, towards the agricultural and agri-food transitions, and towards the strengthening of the social cohesion and inclusion. So we're giving on this page the list of this item. What is interesting is that we are committed to give regular updates on the way we progress on the achievements that are described on this page. On page 19, just a few reminders of all the achievements of this medium-term plan. First, as I said in the beginning of this meeting, we've met now all the financial targets that we had initially set for 2022. This is the case for the net income, which is now well above the 5 billion euro threshold. This is the case and this has been the case for the cost income ratio since now several quarters. It's also the case for the return on tangible equity above 11%. The distribution policy sticks strictly to our 50% commitment, despite the fact that in 2019 we had to skip the dividend. And then the CT1 ratio is well above the 11% target. We've fully unwind the switch mechanism. The initial commitment was to unwind it half by end 2022, but actually our financial capacity allowed us to do it more completely and earlier. And this is going to help fuel the future profitability of CASA next year. And also taking a look at all the strategic operations that we did in the last three years, I think we can say that we've been quite agile in adapting our setup to all the opportunities and to all the necessities. We concluded eight new significant strategic partnerships. We've made a significant number of acquisitions for a total of 4.3 billion euros. But we've been also able to dispose of certain assets for a total of 2.3 billion euros. So all in all, the impact of this acquisition net of the disposal represented 50 bps of capital consumption in the course of the medium term plan. On page 20, you have a wrap-up of all the initiatives that we've been taking last year in order to adapt our car financing business to the new behavior of the customers and to the new, I would say, standards in this business. We've completely restructured. the partnership with Stellantis. This is going to be up and running beginning of 2023, but the principles are now clear. And CACF is going to be and to become the exclusive partner of Stellantis for the development of their long-term leasing in all their branches across Europe. We are going to to become the 100% shareholder of FCA Bank and we are going to develop a new model through FCA Bank of multi-brand car financer across Europe. And we've also started from scratch a business of long-term rental offer dedicated to the group's retail banking customers targeting 100,000 vehicles by 2026. If I go now to the main highlight regarding every business line specifically, let me start with the asset gathering and insurance activities on page 22. Excuse me, just two important items on this page. The very sharp increase in the assets under management globally triggered both by, of course, the acquisition of Vixor, but also a positive market effect and significant inflows. And the profitability of this business division continues to progress for the full year and for the quarter. Looking at the insurance activities on page 23, it's been a very active quarter from a commercial viewpoint with a record of income premium in Q4 21. a very good activity both in life insurance activities and non-life activities and also a very strong quarter in terms of profitability despite the fact that the revenues were impacted by two phenomenon. The first one is the declassification of La Médicale de France which is now accounted for under IFRS 5, considering its imminent disposal. And the second element is that, again, this quarter, we've had a significant amount of capital gains with a low corporate tax rate, and this allowed us to reduce our financial margin to continue to strengthen the different provisions that we have in our books, whilst generating at the same time the targeted level of profit. On page 24, we are giving some longer view elements of evolution of the profitability of the insurance business. And what is interesting to note is that in the last eight years, we've been able to grow the net profit by around 4.5% to 5% a year. despite a revenue growth which was only 2% a year. So this is perfectly illustrating the fact that actually considering insurance activities, it's not sufficient to assess only its profitability through the top line. You really need to go to the bottom line in order to fully acknowledge the profitability. And in the upper side of this chart, what we show is that we've been able in the life insurance activity to continue to keep a very important margin between the yield of the asset books that we have and the profit sharing rate that we pay to our customers, fueling at the same time the profit of the insurance company and also a sharp increase in the policyholder participation reserve that is helping us for the future. In the asset management, Amundi published its results yesterday, so you've been probably able to take a look at them. I think we can stick to a few comments. The first one is that the threshold of $2 trillion of assets under management has been exceeded. And again, it's due at the same time to very strong inflows, plus, of course, the integration of Lixor end of 2021. And from a financial viewpoint, the net profit is very significantly up despite some kind of normalization of the performance fees this quarter. If I go now to the large customer division on page 26, maybe just a few highlights regarding the asset servicing business. We have a strong growth of assets under custody and assets under administration, a sharp increase in the top line, and so a good evolution of the net profitability of CASEIS. On page 27, some highlights regarding CACIB. I think that once again, this quarter illustrates the very good resilience of CACIB. You know that globally for all participants in this market, FICC business was weaker this quarter as compared to the same quarter in 2020. It was to a certain extent less the case for CACIB than for some of its competitors, but nevertheless, This slight decrease in revenues in the capital market activities was more than compensated by a very buoyant level of activity in the financing businesses of CACIB. And all in all, considering the fact that the cost of risk has been almost pushed down to zero this quarter, The net profit of CASIB is at a very high level and increasing sharply as compared to 2020. I should add to that that this very low level of cost of fish this quarter has been reached despite the fact that we've been taking a kind of overlay bucket one and bucket two provision across the board and especially at CACI, but CACI represents close to 50 million euros of overlay provision this quarter. In the specialized financial services division, so consumer credit and leasing and factoring activities, we see more or less the same trends, i.e. a very good commercial momentum in the fourth quarter. And it's been the case despite some headwinds. The first headwind regarding the consumer credit activities is the fact that the car market in Europe continues to be a little bit penalized by these bottleneck issues and so the all what is connected to the to the financing of new car is penalized but despite this fact production is up and Outstandings are up as compared to end of last year and regarding leasing and factoring activities the level of activity was also very very dynamic this quarter and So this is leading all in all to revenues which are significantly up, cost of risk which is down, and the net profitability which is quite significantly up for all these businesses. If I go now to French retail banking activities, LCL, we've got a good quarter again in terms of commercial activity for the full year customer capture which is above 300,000 new customers. And books are up, both for loans and for customer assets, leading to a revenue which is quite significantly up, 4.5% for the full year and 3% for the quarter. The cost base continues to be very well managed, more or less flat as compared to 2020. The cost of risk is down, and thus the profitability is sharply increasing. In Italy, of course, this quarter is a little bit to read, considering the fact that we are in the process of integrating Creval within our setup. The last quarter was really the history of integrating Creval from a commercial viewpoint, i.e. progressively training all the Creval staff to the sale of the different products and services manufactured by the group. And the figures are of course impacted by the integration of Creval. If we try to read across these figures and to assess the performance of the historical perimeter of Credit Agricole Italy, what you would see is that revenues were down clearly, impacted amongst other elements by the sale of a very significant portfolio of non-performing loans, 1.5 billion euros. So, of course, this is leading to a lower level of revenues, all things being equal. And we continue to see in Italy globally a certain pressure on the interest margin. But nevertheless, fees and commissions are increasing. positively oriented. The cost base is apparently up but actually restated from a high contribution to the Italian deposit guarantee fund, the cost base is flat. The cost of risk is improving and so the net profit on the historical perimeter is more or less flattish this quarter and sharply improving for the full year. Credit Agricole globally in Italy on page 31, again these activities in Italy continue to represent a very strong contribution to the net profit of Credit Agricole SA, around 13% of the net profit of Credit Agricole SA, and this is an amount of 750 million euro of net profit generated in Italy. We provide on this page a summary of all the elements that were linked to the acquisition and to the integration of Creval. And what you can see is that in two steps, second quarter and fourth quarter of this year, we've recognized all in all a net badwill of close to 500 million euros plus certain DTA adjustments. positive DTA adjustments and this financed a series of operations that were designed to boost the future profitability of Crédit Agricole Italia going forward with the launch of a next generation HR plan, so it's a redundancy plan that is going to help us reduce and improve the staff in Italy, and the financing of this NPL sale plus a strengthening of the provision related to the remaining loan books that we have in Italy. The rest of the international banking, retail banking activities, excluding Italy, so the four entities that we have, what we can see on this page is that the normalization continues to be up and running after the year 2020, which was earmarked with the pandemic consequences. And so we are now reaching back levels of profitability that we had before the pandemic. with a net profit which is up 40% on the full year for this business division. The corporate center is significantly up this quarter, reaching a very low level of losses of 26 million for the quarter only. It's linked to a further improvement of the structural components of the corporate center with an improvement of the management of the balance sheet of CASA and CASA Holding, with also the businesses accounted for within the corporate center posting better performances. It's the case for the private equity business, for example, and with also an increase of the revenues coming from the payment services entities. And the non-recurring or the more volatile part of the corporate center is also improving this quarter with some inflation swaps generating positive re-evaluation plus dividends that we've received from entities outside the group. Let me finish this review of the different businesses with the regional banks of Credit Agricole. And we will see more or less the same trends as the one we've seen with LCL, with a significant level of customer capture, plus 1.2 million new customers this year only. A sharp increase in the balance sheet, with customer assets up 6% and customer loans up 5%. almost all categories of loans being significantly up. The equipment rate of the customers of the regional banks continue to be up in insurance products and amongst other non-life insurance products. And so this is leading to a very strong improvement of the contribution of the regional banks to the results, the net results of the group. Let me go now to the solvency. You can see on page 37 the evolution of the solvency of the group and the evolution of the solvency of Credit Agricole SA. At group level, the solvency improves further this quarter, going from 17.4% to 17.5%. And at CASA level, the solvency is quite significantly down, but in a very explainable manner. It's down from 12.7% to 11.9%, so it's a decrease of around 80 bps. And this decrease is completely explained by two elements. which are first the switch unwinding, which represents around 60 bps of impact on the CET1 ratio, and the extra distribution above the normal dividend that is regularly provisioned quarter after quarter. This quarter, we have also the consequences of two elements. First, the share buyback that we did in the quarter, around 500 million euros of share purchase that are going to be canceled, and also the extra 20 cents of share dividend that is in connection with the 2019 dividend repayment. This quarter, we also have some negative impacts of the different M&A transactions that were concluded on the quarter. namely the acquisition of Olin by CALF plus the acquisition of Lyxor. Going now to the dividend on page 38, we reiterate the commitment that we have to pay 50% of the net attributable results in cash. And this quarter we add to that, this year, excuse me, we add to that another 20 cents in order to continue to repay the skipped 2019 dividend. We've paid 30 cents in 2020. we are going to pay 20 cents. So this means that there is still another 20 cents to go before we have fully repaid this 2019 skipped dividend. I think that regarding liquidity on page 39, there's nothing much to say. The situation continues to be very ample and very comfortable. Simply note that we are starting to study the end of the TLTRO mechanisms and all the consequences of the progressive exit from the different quantitative easing monetary policies in order to make sure that we continue to have a very good liquidity position going forward. On page 40, market funding, what I can say is that the market funding program has been completed without any difficulty in 2021, and we continue to be ahead of the curve in 2022 with a significant amount of different categories of debt that have been already issued on the market since the beginning of the year in very good conditions. So let me now conclude by reiterating the fact that this year results were very good results with a high profitability, a high solvency, but we need to assess those results in a series actually of good performances that we've had in the last at least five or six years with a very regular set of a very regular capacity of growing the top line a very good cost discipline and all in all a very prudent risk management thanks again and let me now take your questions