Credit Agricole Sa

pleasure for me to be with you this afternoon to present our Q3 and first nine months of the year results. I will go directly with the main figures. I'll try to make the presentation as quickly as possible in order to leave your questions afterwards. So let me start on page four where you can see CASA's main figures. Maybe just a few highlights on this page. On the quarter, revenues are up, close to 1% up as compared to Q3 21, which was already a record quarter in terms of revenue. So again, this is the highest level ever for a third quarter. Second point on the quarter, you see the cost of risk increasing moderately as compared to a basis in 21, which was very low. Third element on this page, The CET1 ratio at 11% is at the target. And last point, the return on tangible equity is at 12.5%, which is again above the target we had set for 2025. If I look now at the first three quarters of the year, the nine months, revenues are up more sharply on the first nine months, plus 5%, almost 5%. The cost-income ratio on the first nine months at 58% is below our ceiling, below our commitment, and at a very comfortable level. And the bottom line, the net profit for the first nine months, underlying net profit, close to €4 billion, €3,937,000,000 is flat, almost flat as compared to the first nine months of 2021, which was a record level. If I go now on page 5, where we have the group's main figures, you'll find more or less the same trends, i.e., Revenues for the quarter, which are more or less stable, but for the first nine months, the revenues are significantly up, plus 3%. Cost of risk is more sharply up for the group globally, but you will see that at the level of the regional banks, we've been booking again this quarter a significant addition in terms of S1 and S2 provisions, so it doesn't translate any kind of increased in incurred risks. The net profit continues to be at a high level despite a small decrease as compared to 21, both for the quarter and for the first nine months. And lastly, for the group, the solvency ratio at 17.2% is 8.3 percentage points above the stress level. If I go now on page seven with the main messages we wanted to stress this quarter, I think that what is interesting to note is that we've continued in the third quarter of this year, we've continued to have an adverse environment in terms of market. Rates continued to increase significantly. And you will see that it's not necessarily only a good news. equities market were significantly down in the third quarter, as was the case for the first two quarters, which has a significant impact on several of our activities. On the forex market, the euro continued to decline quite significantly, especially compared to the dollar. Inflation kept being at a high level. and probably higher than what we initially expected. And lastly, you know that this quarter, beginning of the third quarter, it was the end of the mechanism of bonus that applied to the TLTRO, which represented a significant add-on to our revenues up to the end of Q2 this year. Despite that, we've managed to keep a high level of revenues, as I said, and a high level of profitability, alongside with a solvency that was maintained at the target for Gaza and, of course, that was at a very high level for the group globally. And we've continued to roll out the different priorities of the medium-term plan with, amongst other elements, the signature of the deal between CASEIS and RBC through which CASEIS is going to become the shareholder and the owner of the European activities of RBC in the course of next year. Let me go now on page 8 where you have some elements regarding the activities, the underlying activities. I think that what we can see is that we've kept being very present vis-à-vis our customers in terms of lending. So the loan production continued to increase, both in retail banks, regional banks plus LCL, and also in consumer and leasing activities. This, of course, was very positive in terms of attractivity for the group. And again this quarter, it's close to 500,000 new customers we've managed to attract in our different networks, retail banking networks in Europe, France, Italy, and Poland. So all in all, since the beginning of this year, it's 1.5 million new customers that we've attracted in our networks. And of course, this is generating a further increase in our revenues coming from additional activities like insurance, non-life insurance activities, where again, we've seen an increase of close to 7% of the premium income. On page nine, some additional elements regarding our revenues, our top line. As I said, on nine months, the dynamic is absolutely excellent, plus close to 5% and even close to 3% at constant scope. On the third quarter, of course, the market conditions I was mentioning earlier made it a little bit more difficult for several of our activities, amongst which the asset management businesses and also in the Specialized Financial Services Division, where we have had a significant increase in our refinancing costs. But globally, thanks to the very good performances in the large customer division and also retail banking activities, we've managed to post for the businesses only a top line improving by around 2% on the quarter. And again, this is illustrated on the right-hand side of this page. Again, this quarter, we've managed to post a higher level of revenues than in the same quarter of last year. It's been steadily the case quarter after quarter in the last five years. On page 10, some elements regarding the costs. On nine months, the increase in the cost base is around 3.9% at constant scope. and it's below 3%, excluding the Forex effect. And on the quarter only, the increase for the business lines is limited to 2.9% at constant scope. So it's around 90 million increase this quarter, out of which you have 20 million, close to 20 million in connections with the salary increase we have decided to grant in the middle of this year. I was already mentioning this point in the previous call. And you have also 30 million euros of forex effect. If I go now on page 11, the evolution of the gross operating income, when we look only at the business lines, what you can see is that on the quarter, the gross operating income is very close to the one we had last year, minus 1%, and it's plus 2% on the first nine months of the year. And so, in average, we post a gross operating income, which is very significantly above the one we had back in 2019, so pre-pandemic. Last point, the cost-income ratio that we have continues to be steadily below our ceiling of 60%, and also interesting to note that it is constantly, in the last five years, five percentage points below the average of the biggest European banks. It's the chart that you have on the right-hand side of this page. Going now to the cost of risk, what we can say this quarter is that we are back in terms of proven risk to the quarterly average of 2019. And if we look back at the way we were qualifying the cost of risk, in 2019, we found it at that time very moderate. So clearly, we continue to have a cost of risk which is very benign despite some increase if we compare the cost of risk with the same quarter last year where it was abnormally, I would say, low. In terms of ratio, at CASA, we have globally a cost of risk which is around 30 bps. regarding the outstandings, be it on the basis of the last four quarters or on the basis of an annualization of the last quarter, which is below the assumption of the medium term plan. And when it comes to the group globally, we are at 22, 23 bps, including a significant add-on again this quarter, from the regional banks on the S1 and S2 provisions. It was already the case in Q2. So it means that the regional banks continue to be very prudent in terms of preparing for the future and complementing once again their prudential provisions. This is illustrated on the following page, page 13, where you can see that at group level, we have a global level of provisions which is, and more or less, which remains since three years in the same region, around 20 billion euros. But interestingly, the proportion in this amount of 20 billion of S1 and S2 provision has significantly increased. It now represents 42% of the total. And at Casa, we have exactly the same trend. And so S1 and S2 provision represent at Casa 37% of the loan loss reserves that we have globally. In terms of coverage ratio, we continue to have very high coverage ratios, 73% at Casa and 87% at Group globally. This translates, and you have it on page 14, in a situation where both Casa and the group post amongst the best performances in terms of coverage ratio in the space of European banks, which is illustrated on the left-hand side of the page. And it comes from the fact, as illustrated on the right-hand side of the page, it comes from the fact that we have a very diversified loan book in addition to a very strict credit standard. Let me go now to the net profit on page 15. As you have seen, we have a slight decrease Q3 on Q3, minus 10%, which is largely explained by the corporate center. in which the deterioration of the level of profit comes significantly with some temporary and non-cash elements. We can go back on this point later on. On the first nine months, it's very stable, minus 0.6%, and it's 20%, 20.6% above the level we had back in 2019, so before the pandemic. In terms of profitability, page 16, you can see that the return on tangible equity, as I said, is at 12.5%. It's, again, 2.5 percentage points above the average of the biggest European banks. Let me go now to the solvency, starting with Casa. This quarter, you can see on the waterfall chart, On the left-hand side of the page, at Casa, the CET1 ratio decreased this quarter by around 30 bps, which is more than explained by some market impact, both in terms of a further deterioration of the OCI reserves coming from the insurance business, plus also a significant market impact on the RWA of the capital market activities at CACIB. On the first nine months of the year, this is the right-hand side waterfall on this page, the depletion is of around 90 bps, out of which I would say the day-to-day business generated an improvement of the capital situation by 34 BIPs, retained result 47 BIPs, and the different elements coming from the day-to-day management of the group, it's the consumption of 13 BIPs. And the depletion is completely and more than completely explained by some, I would say, market effect. The OCI reserves coming from the insurance activities represented on the first nine months of the year a global impact of 84 BIPs. RWA and market effect on the capital consumption of CACIB's capital market activities is 24 BIPs. And in addition to that, you remember that in the first quarter of the year, we booked a significant deterioration of our exposure on Russian counterparts. This translated into additional provision, S1 and S2 provision, plus also an increase in the RWA density of those exposures. What is interesting to note is that a significant part of these effects are going to revert in the future over time. It's especially the case of the OCI reserves of the insurance activities. If I summarize the situation, back end of 2021, we had a CET1 ratio of 11.9% in which we had 30 bps of unrealized capital gains that we are going to pull to zero over time. We have now a CET1 ratio of 11%, which includes a negative component of 50 bps coming from the OCI reserve. And again, this negative component is going to pull to part over time when the bonds, the underlying bonds, are going to mature progressively. So this explains exactly how the situation evolved over the first three quarters of the year. Globally for the group, and you have it on page 18, on this quarter we have more or less the same effect and the same impact as the one we've mentioned about CASA. So the CT1 ratio of the group went down from 17.5% end of June to 17.2% end of September. But what you can see, and of course you are perfectly aware of that, is that at 17.2%, the group is one of the best capitalized GSIBs in Europe. And in terms of distance to SREP, with 830 BIPs, it is the best capitalized GSIB in Europe. In addition to that, CASA, which is not a GSIB, continues to have a distance to SREP which is above 300 BIPs. which compares very favorably to a sum of the GSIBs of our sample. Last point on this section, if we position the performances of CASA for the first nine months of 2022 on page 19, what you can see is that we are perfectly in line both with the targets that we had set for 2022 in the previous medium-term plan. and also with the new targets that we have updated in June this year for 2025. It's the case, of course, for the return on equity. It's the case for the cost-income ratio. It's the case for the CET1 ratio. And in terms of profit, of course, we will see what the situation will be at the end of this year. But clearly, we are not in a very, I would say, uncomfortable situation from this point of view. Last point on this page. The dividend that is accrued end of September represents 58 cents a share. Let me go now to the different business lines rapidly, starting with the asset gathering division. Clearly on page 21, clearly for the asset gathering business division, it was a difficult quarter in terms of a very negative market effect, plus also a slowing down of the inflows and even negative flows at Amundi. Despite that, the business division continues to have a very good level of profitability with a net profit for the quarter down only 3% and for the nine months down only 1.5%. For the insurance activities specifically on page 22, the messages are very simple. In terms of life insurance activities, exactly what we found globally for the business division flows were more or less close to zero this quarter. But nevertheless, in P&C activities and protection businesses, we continue to have premium income up around 7%, if you restate the gross figures from the fact that La Medical de France has been sold beginning of the third quarter. And this disposal of La Médicale de France generated a capital gain of 100 million euros, which has been restated, so it's not in the PNL, that is on this page. And so despite this restatement of the capital gain, the insurance business division posts an improvement of its profitability of around 4% this quarter and 5% for the first nine months. For Amundi, page 23, again, the market conditions were very negative with the decrease in equities market, an increase in the rate, and so a decrease in the value of the bonds, and a decrease of the euro. The market globally was negative, and the outflows were very significant, especially in Europe. So in this context, Amundi's activity was quite resilient. Outflows were limited in terms of medium and long-term assets. And the decrease in revenues as compared to Q3 2021 translate into a slight increase as compared to the second quarter of 2022. And of course, the decrease between Q3 2021 and Q3 2022 is more than explained by the sharp decrease in performance fees. Going now, page 24, to the large customers division and starting with CASIB. In the third quarter of this year, the activities were globally good with revenues up close to 5%, but on the quarter, The engine that worked the best was clearly the financing part of CACIB. It was more difficult in the capital market activities. The reason is, of course, very simple as always. We are here to provide financing to our customers either through our balance sheet or through capital market products. It happened that this quarter, DCM was a weak quarter globally in the market. And so, of course, as DCM is a very important driver for our capital market activities, this generated a slight decrease of the revenues of this subdivision this quarter. But globally, revenues were up at CACIB, and if I look back at the first nine months of the year, the increase is even sharper, plus 10%, and all sub-compartments of the activities were significantly up. In terms of Cost of risk, it's a significant increase as compared to last year, but last year was almost nil. So you can note that this quarter, the level 32 million euro is very low. And on the first nine months, take into account the fact that we've booked in the first quarter significant provisions regarding the Russian exposure. So all in all, the profitability at CASE is a little bit down, but nevertheless remains at a good level, above 1 billion euros for the first nine months of the year. Large customer division, again, with the asset servicing activities, we wanted to highlight a little bit more what is happening at CASE, because CASE is more and more becoming a very important component of the the equilibrium of the group and the business model of the group. Two elements on this page. The first one is that CASEIS has reached a few weeks or months ago an agreement, in principle agreement, with RBC to buy its European activities in the field of investor services. And this is really going to be a game changer for CASEIS which will become the number one in Europe in terms of assets under administration, and it would strengthen its position as number two in assets under custody. So it's a very important operation, which is going to be very relative with a return on investment that is going to be above 10%. And this operation is to be completed and closed middle of next year, probably third quarter of next year. In the present context, the assets at CASEIS were down this quarter because of market movements, but nevertheless, revenues were significantly up, and CASEIS starts to benefit from the cost-cutting plan that was put in place last year. So all in all, this is generating a very sharp improvement of the profitability of CASEIS, plus 37% on the quarter and plus 23% on the first nine months. Specialized financial services on page 26. For the consumer credit business first, messages are very simple. The production has been very dynamic this quarter. The biggest engine being the car financing businesses, both with the joint ventures that we have and also with the car financing loans that we grant in the perimeter of Sofanco or directly at Agos. The margin continues to be a little bit under pressure, especially in France, because the refinancing costs rise more rapidly than our capacity to repass this increase to the customers, especially because of the mechanism of the usher rate, but it's going to be progressively accommodated over time. The costs are under control, so the cost-income ratio is slightly down as compared both to Q3 2021 and Q2 2022, and the cost of risk is But up as compared to a third quarter in 2021, which was very low, especially at Agos, where we had some reversal of provisions. for technical reason back in 21. On the leasing and factoring activities, also a very good quarter in terms of activity, a very good level of revenues, and the cost of risk, which is down, so all in all, the profitability at Calais is improving significantly. French retail and LCL, commercial activity is very dynamic, and we have had a production of new loans, which was again this quarter significant, up, especially for the self-employed professional and business loans, and only very modestly down for home loans. I think it was minus 2 or minus 3% at LCL in an environment where globally the market was much more sharply down. Financial results are very solid. The top line is up 0.6% despite the pressure on the net interest margin. You know that in the middle of the summer, we have had the increase in the cost of the second increase in the cost of regulated savings accounts. And we lost since the beginning of this quarter also the 50 bps premium on the TLTRO drawing. Fees and commissions are very well oriented. Costs continue to be under control, plus 1% on the quarter, despite the increase in salaries I was mentioning for all our French staff. And the cost of risk is up, but continues to be very low, actually, in absolute terms, in absolute numbers. In Italy, the situation is a little bit different. The Italian market has been good for businesses and for consumer credit, but it has been much more muted for home loans. And so we find the same trend at Credit Agricole Italia. Nevertheless, Credit Agricole Italia is gaining market shares in home loans. And also, Crédit Agricole Italia is progressively benefiting from the integration of Creval. So all in all, revenues are slightly but positively up. Operating expenses are almost flat, 4.6%. So the gross operating income is up 1.5%. The cost of risk is down and very low. and the net profit of Crédit Agricole Italia is up 12% on the quarter and 33% on the first nine months. For the rest of the international banking activities, international retail banking activities, very good momentum both in Poland and Egypt. In Poland, we have booked a provision regarding the moratorium that has been imposed by the Polish authorities. It's a 20 million provision that has been booked at the bank Polska and restated. So it's not included in the PNL on this page, but it's an exceptional item. The cost of risk in those two countries continue to be very low. In Ukraine, Again, as we did in the last two quarters, we've booked provisions that almost completely offset the gross operating income, which was quite nice this quarter in Ukraine, despite the context, 35 million euros. And of course, I remind you that we have a provision at Casa that is covering the full value of the equity invested in Ukraine. Corporate Center is down this quarter. It's down especially for revenue reasons, in particular with the elimination of intra-group securities issued by Casa, subscribed by Predica and or Amundi, and also as part of the TLTRO was booked at Casa, at the Corporate Center. Of course, the Corporate Center is losing the 50 BIPs premium as a everywhere else in the group. And we have also probably a certain prudence in the assessment of the level of taxes that we are going to book end of the year at the corporate center. So here are the main points regarding CASA. On page 32, some highlights regarding the regional banks of Crédit Agricole. You will find more or less the same trends as the ones We see at LCL, i.e., a very good level of loan production, both for business loans, consumer credit loans, and home loans. You can see that globally, the regional banks continue to attract new customers. It's, again, close to 300,000 new customers this quarter and 900,000 over the first nine months. This is probably this good level of attractivity is probably related also to the fact that we continue to be very present in terms of loans, in terms of lending, and this is going to be beneficial more globally as time passes by. The top line is down at the level of the regional banks in connection not only with the fact that As for LCL, there is a certain pressure on the net interest margin, but you also know that the regional banks have significant portfolios of assets, and the fair value of those assets has been negative this quarter, considering the context. The cost of risk is significantly up, but really you must assess the fact that amongst the 273 million euros of cost of risk this quarter for the regional banks, you have 160-something million euros of S1 and S2 provisions. And this is exactly the same for the first nine months. More than half of the level of cost of risk at the regional banks is made of prudential provisions. If we go now to page 34, what you can see is that the liquidity policy situation of the group continues to be very comfortable. Maybe in addition to that, considering the new rules that apply to the TLTRO cost starting November 23, we will certainly reduce the outstanding before year end, even though after November 23, the TLTRO amount are going simply to represent a zero-cost liquidity reserve for us. And on page 35, just as a reminder, it's been the case steadily since the beginning of this year, we are ahead of the curve in terms of deploying our market funding program. We have now raised 14.5 billion euros of funds medium and long-term market funding at end September, and probably I think it's 1 billion more at end October. And at group level globally, it's 35 billion euros that we've raised since the beginning of this year. So here are the main figures and the main elements I wanted to stress in this presentation, and I think I will now let you, the floor, for your questions.

Thank you. This is the conference operator. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Jacques-Henri Collard with Kepler. Please go ahead.

Yes, good afternoon, Tim. Just a question about the involvement of the regional banks in the capital of Casa. By involving them more closely, don't you run to risk, basically? The first one of materially reducing the liquidity of the shares. And at the same time, you're actually keeping the option of taking the company private at a potentially low price. Because, you know, in any case, La Boétie would have no commitment to maintain any sort of price if that was the case. then wouldn't that make the long-term investment case of CASA a little bit pointless, basically? Thank you.