5/10/2023

speaker
Conference Operator
Conference Operator

Good afternoon. This is the conference operator. Welcome and thank you for joining the Credit Agricole first quarter 2023 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star and one on your telephone. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Jerome Greve, Deputy Chief Executive Officer of Credit Agricole SA, in charge of steering and control. Please go ahead, sir.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Good afternoon, everyone. It's a pleasure for me to host this conference with those good results to present. I'll try to make the presentation quite short and swift in order to leave time for you to ask your questions. Of course, as a reminder, you perfectly know that this quarter is the first quarter of implementation of IFRS 17. So to be very clear, all comparisons that we are going to do quarter Q1 on Q1 are on a like-for-like basis, i.e. all figures for Q1-22 have been restated under IFRS 17, obviously. And for the rest of the year, we are going progressively to publish the coming quarters of 2022 under IFRS 17. If I start directly with page 4, just a few simple messages on this page. The first message is that we are publishing very good, excellent results all in all with a first quarter, which is a record for Credit Agricole SA. The second element is that we benefit clearly this quarter from the diversification of our revenue sources and our businesses. The third element, which is also important to bear in mind, is that we've continued to keep a very strong discipline on the cost base despite the inflation of our environment. And the last point, of course, is the fact that we've continued, besides, I would say, the management of the day-to-day business, we've continued to deal with structural operations in order to further enhance our revenue generation capacity going forward. And we'll have the opportunity to discuss a little bit about these operations. On page five, you have the main figures for CASA. And what you can see is that the stated net income is above 1.2 billion euros. It's a doubling, actually, as compared to Q1 22, restated again under IFRS 17. Revenues are sharply up, plus 10.5%, Q1 on Q1. despite the fact that last year we had roughly 100 million euros of TLTRO benefits, which we no longer have this quarter. Cost base is up only 2.5%. These benefits, obviously, from the reduction in our contribution to the single resolution fund, but also we have a very moderate evolution of the operational cost basis. The cost of risk is sharply down, minus 31%. Of course, in Q1-22, we had a significant one-off provisions regarding the Russian invasion of Ukraine, but nevertheless, the cost of risk continues to be quite benign. And the underlying net income, lastly, is also a little bit above €1.2 billion, and it's up 61%. On the right-hand side of this page, you can see the cost-income ratio, excluding the contribution to the single-resolution fund. Solvency 11.6% for the CT1 ratio at CASA benefiting from the transition to IFRS 17. And the return on tangible equity is around 14.5%, which is also a very high level. If I go now on page six for the figures regarding Credit Agricole Group globally, Net profit is also up plus 23.6% Q1 on Q1 at around 1.7 billion euros. Revenues are up around 2% on an underlying basis. Cost base is up only 0.9%, benefiting also from a reduction in the contribution to the single resolution fund. So the gross operating income is slightly up plus 3.6%, cost of risk down for the same reason, minus 21%, and underlying net profit plus 12.5%, close to 1.7 billion euros. The cost-income ratio for the group globally is at 59%, and the CT1 ratio at 17.6%, stable as compared to end of 2022. On page eight, some elements regarding the activity and the commercial momentum that we've had this quarter, which was very good. Just a few highlights. The first element, customer capture is dynamic, plus 555,000 new customers in our different retail banks in France and the rest of Europe. We continue to increase the equipment rate of our customer base significantly. with internal products, especially PNC insurance policies. And in terms of the production of new loans, it's been dynamic for consumer credit, dynamic in the retail banks for professional and SME loans, less dynamic But nevertheless, the production of new loans at LCL, the regional banks of Crédit Agricole and Crédit Agricole Italia remained above the evolution globally on their market. On page 9, a few elements on the new structural operations that were either concluded or closed this quarter. The first operation, we've been discussing a lot about it since now probably one year, but it's now completed and it's now live in the second quarter. It's the reshuffling of the agreements that we have with Stellantis and the new joint venture that we built between Crédit Agricole Consumer Finance and Stellantis, LISIS, which is going to become one of the leaders in long-term car rental in Europe. And it's been completed by the acquisition of some of the activities coming from ALD and LEAST plan in Portugal and Luxembourg. At the same time, we are taking over 100% of the capital of Crédit Agricole, Autobank, which used to be called FCA Bank, and Rivaliam. And this entity is going to be complemented also by 70,000 new cars coming also from acquisition, coming from ALD and Lease Plan in Ireland, Norway, and the Czech Republic and Finland. Second point, in the payment space, we've concluded recently an agreement with Worldline in order to create a major player in the payment services business in France we are actually combining the forces of the French leader in acquisition which is critical and the French leader in acceptance which is a world line and the goal is to grow our business in merchant payment services in France twice as fast as the market third point in the real estate business Crédit Agricole Immobilier has acquired SUDECO, which is a property management player, and this is enhancing the capacities of Crédit Agricole Immobilier in proposing its property management services to different categories of customers. If we zoom on page 10 on the revenue generation that we've had this quarter, what you can see is that whatever the way you see, you look at the revenues, the increase is very sharp. On a stated basis, it's plus 9.5%. On an underlying basis, it's plus 10.5%. And lastly, if we restate those figures from the fact that we no longer have the TLTRO benefits, the increase is even sharper, plus 12.5%. Second interesting point is that this revenue generation, strong revenue generation, can be acknowledged in three of our four main business divisions. It's true in the asset gathering division where the slight decrease in revenues at Amundi because of a less significant level of performance fees is more than compensated by the good level of revenues in the insurance activities. It's true also within the large customers business division where both CASEB and CASEIS perform very well. And it's true also in the retail banking business division where the pressure on net interest income at LCL is more than compensated by the dynamics that we see in Italy, in Poland, and in Egypt. For the specialized financial services division, we have more or less a stable level of revenues, which is the combination of a good development of the business with, again, a significant increase in the production of new loans at CACF. But nevertheless, production margins that continues to be a little bit under pressure even though they've started to improve this quarter as compared to Q4 last year. So all in all, the increase in the top line is very strong, and this is, I would say, a feature that we continue to post since at least six years in a row. If we look now on page 11 at the cost base, what we can see is that we've been able to post a positive Joe's effect, whatever, again, the way you look at it, be it on an underlying basis or on a stated basis, because the operational cost base is increasing by 6.2% to 6.9%. depending on which figure we look at. In addition to that, we can see that in the asset gathering business division in SFS and retail banking activities, the cost base is more or less flattish. And it's not only in the large customers business division where the revenue increase has been the most dynamic that we see a significant increase in the cost base. And within this increase in the cost base, actually more than half of it is a provision for future and potential, I would say, variable compensation, depending, of course, on the performance of the rest of the year. So nevertheless, a very positive Joe's effect globally and positive Joe's effect also in most of our business lines. Going now on page 12, we can see that we post, as I said, a significant decrease in the cost-income ratio, which is now at 54.1%. We had said when we published the medium-term plan back in June last year that thanks to IFRS 17, we will reduce our cost income target down to 59%. Actually, the effect, the mechanical effect of the transition to IFRS 17 is higher than what we had in mind, and so we We state again our target, and now the medium term plan target for the cost income ratio post IFRS 17 is now at 58%, so we can see that we are already far below this target. On page 13, some elements on the cost of risk. The cost of risk, as I've said, is significantly down as compared to Q1 2022, minus 31% on the perimeter of Casa and minus 21% for the group globally. Second point, which is important to note this quarter, is that, of course, within this cost of risk, what comes from the coverage of incurred risks is increasing, but nevertheless we've continued to book 75 million euros of S1 and S2 provisions this quarter. And maybe the last point is the fact that this quarter The cost of incurred risk at 284 million euros for CASA and at 464 million euros for the group globally is below the average that we had back in 2019, i.e. before the COVID crisis. And we can see that the cost of risk in terms of BIPs as compared to outstandings at 28 or 30 BIPs for CASA and 23 or 19 for the group, depending if we look at it on the basis of four rolling quarters or on an annualization of Q1 this year. So these levels are below the assumptions that we've made for the medium term plan as across the cycle, I would say assumptions. So cost of risk globally that continues to be moderate. In terms of net profit, the result of this sharp increase in the revenues, good control of the cost base and the decrease in the cost of risk. This is leading to a sharp increase in the net profit, plus 61% on an underlying basis and a multiplication by more than two on a stated basis for Kazan. This comes from almost, again, every business line. Asset gathering, large customers, and retail banking all contribute significantly to this increase. And what is also interesting is that this increase is a combination of a significant improvement of the gross operating income. Of course, we have this decrease in the contribution to the single resolution fund. We have also a significant decrease in the cost of risk. Of course, corporate tax is up and the bits and pieces are slightly less profitable, 56 million than in Q1. All in all, an increase in the net profit of 655 million euros. Going now on page 15, some elements regarding the strength of the group globally and the CT1 ratio of the group. It is stable at 17.6% over the quarter. It's the combination of a positive IFRS 17 effect plus 10 BIPs. which is more or less offset by the further phasing in of IFRS 9 minus 13 BIPs. We have a good level of retained earnings, but on the perimeter of the group, a significant increase in the RWA consumption of the business lines, especially within the regional banks of Credit Agricole. So all in all, we have a distance to SREP which, at 870 bps, continues to be the best in class amongst European G-SIBs, which is definitely the sign of a very strong capital position for the group. When it comes to CASA, we post this quarter a sharp increase in the CT1 ratio at CASA, 11.6%. It's up 40 bps. IFRS 17 transition is providing a very significant improvement, plus 32 BIPs. We had guided to a level of improvement of at least 15 BIPs, and actually, thanks to the fine-tuning we've made since this guidance three months ago, we've been able to improve further this effect of the first-time application of IFRS 17. For the rest, retained earnings generate a net improvement of 15 bps, despite the fact that we've provisioned already 18 cents per share in terms of future dividend. Phasing out of IFRS 9 costs 10 bps, and the other elements are almost neutral. We've been very, very cautious. moderate in terms of RWA evolution for the business lines this quarter. Going now to liquidity, we start on page 17 with some few elements on our deposit basis. You can see that over one year between end March 22 and end March 23, The customer deposit basis is stable. This customer deposit is made of two-thirds of deposits coming from households and SMEs and self-employed professionals. Actually, amongst our different retail banks in Europe, we have 37 million retail banking customers, so it's a very granular deposit base. We have also 21% of our deposit base coming from corporate, 10% coming from financial institutions, and 2% coming from a sovereign and public sector institution. Last point may be on this page. Close to 600 billion euros of our customer deposits benefit from one of the different guarantee schemes that exist in the countries where we operate. On page 18, an update on our liquidity reserve position. There is a slight decrease between end of December last year and end of March this year, absolutely non-significant. It comes mostly from the fact that we have started to amortize some real estate claims that are still eligible to the central bank up to the end of June this year, but it's not going to be renewed after June. So we haven't reloaded our reserves in this category of eligible claims. But nevertheless, the LCR ratios continue to be at a very high level, both for the group and for CASA, and both on... the basis of the last 12 months and in terms of figures at the end of March this year. So the surplus that we have is far above 100 billion euros. And the stable resources position continues to be very significantly positive, 217 billion euros and significantly within our monitoring target, 110, 130, restated from the future repayment of TLTRO. I will terminate this presentation with some updates on the asset quality of our balance sheet. First, on page 19, what you can see is that the level of non-performing loans continue to be very, very low. It is at 2.7% for CASA, stable versus end of last year, 1.7% for the regional bank, slightly up 0.1 percentage point as compared to end of last year, and globally 2.1% for the group, which is again stable. We have for the group globally 20 billion euros of provisions, So this represents 83.4% of coverage ratio, which is a very high level, a little bit up as compared to end of last year. And what you can see is that those very high coverage ratios compare very well with the rest of our peers. Credit Agricole Group is definitely one of the leaders in this front amongst European banks. But also at Casa, at 71%, we are in the upper tier of our sample of pills. And this comes definitely along with a very diversified and very secured loan book, both at the group level and at Casa levels. So I will terminate this presentation now. We have just after that all the traditional pages, business line by business line, and we can use them definitely if needed in order to answer properly your questions.

speaker
Conference Operator
Conference Operator

Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. The first question comes from Tarek El-Majad of Bank of America.

speaker
Tarek El-Majed
Analyst, Bank of America

Hi. Good afternoon, everyone. Two questions, please. The first one on the JOS. In your medium-term plan, you guided for the half percentage points of JOS and cost income of 60 that become now 58%. You've been beating the Joe's guidance for a few quarters in a row with some volatility, obviously, but the trend is more to improvements. So can you maybe give us indication where do you see the Joe's from here, and especially in a drive for a 17, and where do you see, and do you confirm they have points or you see upside to that? And the second question is on capital and dividend. I mean, I'm happy to see that this is not a topic that is a concern to the market anymore. I think you generate more capital than you can distribute. You stick to 50% payouts. Do you think we can have a nice surprise at the end of the year where you deliver at least a flat DPS offsetting, compensating for the 20 cents you paid last year for the 2019 skip dividend? And just maybe one additional question on the singular resolution fund contribution. I know this is something that will disappear at the end of the year, but How do you explain the decrease in SRF? Is it like what your competitor explained last week in terms of the change in rules or the ratio of how much you can put in on or off balance sheet in terms of the SRF? Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you, Tariq. First element on the JOS, yes, we are ahead of schedule in terms of producing this positive JOS effect. we are not going to restate our target just after one quarter inside the MTP, but you know that we've been very, very keen on trying to beat our target, be it the cost income target, be it the Joe's target, be it the net profit target for the last two medium term plans. So be confident that we will do whatever we can in order to beat our targets. But please don't ask us every quarter to restate the target. because we will never finish to restate the targets then. Second point in terms of dividend, what I've said already on this front is that first, we have an official payout policy which is 50% of the distributable profits. Second point, yes, we are generating some capital thanks to the good efficiency of our activity, the good level of return on equity that we generate, and so on and so forth. And we have always been shareholder friendly. And there is a perfect alignment of interest between our majority shareholder and the market on this front. So of course, it's far and way too early end of Q1 to discuss this issue. We haven't yet validated at the General Assembly meeting and distributed the 2022 dividend. So please give us a little time before talking about the 2023 dividend. But again, we've been historically investor-friendly. And then for the Signal Resolution Fund, well, the decrease is a combination of two elements, but the most important one is the first one. The deposit base in Europe has decreased, The evolution of the deposit base is evolving far less dynamically than what the single resolution board expected back one year ago. So they are now a little bit ahead of the curve in terms of raising the last contribution in order to cover this 1% target. So this is why the overall amount that has to be raised is And then in addition to that, it's true that we have the possibility of increasing a little bit the proportion of this contribution that we can pay under the form of a payment commitment. But the most important factor is the reduction in the overall target for the size of the fund.

speaker
Tarek El-Majed
Analyst, Bank of America

Thank you, Jérôme.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you.

speaker
Conference Operator
Conference Operator

The next question is from Flora Bocahot of Jefferies.

speaker
Flora Bocahot
Analyst, Jefferies

Yes, thank you. Good afternoon, Jérôme. The first question I wanted to ask you is on the insurance business because if I look at Q4 performance under IFRS 4 and now at Q1 under IFRS 17, in both cases, the revenue and the net profit run rate is a lot stronger than what we used to see over the past quarters. So the question is really around the sustainability of that performance. In particular, this quarter with the accounting change, was there anything related to the first time application of IFRS 17 having an impact on the P&L, not the capital here, but really the P&L for insurance specifically? Or should we consider the P&L run rate that you just printed for Q1 as normal and something that can be recurring? And then the second question I'd like to ask you It's more broadly around the structure of capital within the group. The regional banks have announced around a month ago that they are finished buying Crédit Agricole SA shares on the market. I think they own today 60% of Crédit Agricole SA versus 57% before. They could go up to 65%. At the end of the day, the main reason for CASA to be listed is around M&As. So I think the key question here is, what is your view on M&A? Is it still something you intend to do that could happen in the short term? What could be of interest? So anything you can elaborate on the M&A theme would be interesting.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you. OK. Thank you, Flora, for your questions. On insurance, I'll try to be clear, despite the fact that IFRS 17 is a quite radical change in the way we acknowledge the revenues and the profit that the insurance business division. To be clear, the level of revenues in Euro in Q1 23 has nothing to do with one-offs related to the transition to IFRS 70. So the level of revenues is what it has to be on considering first the production of new policies, and the amount that we've raised in terms of new inflows this quarter in life insurance activities. And second, market condition, because you know that the mechanism of IFRS 17 establishes a relationship between market conditions and the amount of profits that we can acknowledge on a specific quarter. But this has nothing to do with one-offs. related to the transition to IFRS 17. What may have something to do with the transition is the fact that the comparison between the level of revenues in Q123 and Q122, Q122 being restated under IFRS 17 is probably a little bit or partially artificial simply because actually we have applied IFRS 17 accounting standards to a quarter, Q1-22, which was managed under IFRS 4. i.e. all the decisions that we've taken end of Q of 22 in order to desensibilize the portfolio of assets in order to better accommodate IFRS 17 were not applied in Q1 22 by definition because we've taken them end of 22. So the evolution of the revenue between Q122 and Q123 may be probably partially boosted by the transition. But when it comes to accessing the level of revenues in Q123, nothing to do with the transition specifically. Going forward, what is going to impact the level of revenues that we will acknowledge and recognize under IFRS 17, especially in the life insurance activities, is going to depend on two factors. The first one is the production of new contracts that are going to be able to generate future profits, and the second is going to be market condition, which is going to impact the the effective value of all the portfolios that we have in our balance sheet. And it happened that both in Q123, the production of new contracts was dynamic, i.e., we've been able to continue to grow the basis of future profits. And second point, market conditions were good, which has also played favorably for the recognition of revenues this quarter. Under the same conditions of pressure and temperature, we should, going forward, recognize more or less the same level of revenues. Going now to the structure of capital of the group, it's true that now the regional banks own 60% of the capital of Gaza, and they have stated that they could go up to 65%. on an opportunistic mode if they think the conditions are met. We are perfectly comfortable with this level of of stake of the regional banks, of course, but we have, I have to be frank, we have nothing to say about it. This is a decision from the majority shareholder. But when you say that the only reason for CASA to be listed is M&A, it's not exactly true. Because if you assess globally the solvency of the group, there is a significant part of the solvency of the group that is provided. by the minority shareholders of CASA. So clearly, there are a lot of benefits for CASA to be listed, and not only this hypothetical possibility to do M&S through a listed entity. It's neither a necessity nor a condition.

speaker
Flora Bocahot
Analyst, Jefferies

Okay, very clear. Thank you, Jérôme.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you.

speaker
Conference Operator
Conference Operator

The next question is from Pierre Chedeville of CIC.

speaker
Pierre Chedeville
Analyst, CIC

Yes. Good afternoon, Jerome. Just to come back on the insurance, maybe I missed it in the number of slides, but I haven't seen the amount of the CSM. And could you remind us if there is any evolution regarding the amortization of this CSM? which could be a follow-up question of Laura. Regarding consumer credit, you mentioned a good production, and if I compare to peers, I was wondering if you will not see later on in the year a decrease in the production due to a more conservative approach considering the macroeconomy. And the last question is about your business in Europe, excluding Italy. We have seen a significant increase in margin, but at the end of the day, when you look at numbers and bottom line numbers, it's a very small contribution, less than 20 million euros and profitability below 7% or something like that. So I was wondering what kind of things you can see to improve that and the way you see the evolution of this part of your business. Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Okay, let me start with insurance. We haven't disclosed the level of CSM, but globally the order of magnitude is probably around 20 billion euros.

speaker
Pierre Chedeville
Analyst, CIC

Sorry, why don't you disclose it? because it's something which is now in IFRS 17, it's a crucial information, I guess.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Yes, I agree. And IFRS 17 is something new. We are learning, as everybody, how to handle communication on IFRS 17, which are the important metrics in order to assess the business. And finally, we have not yet the end of 2022 figures under IFRS 17. This is going to be done end of June. And so at that time we will be able to provide further details. But what I can tell you is that the order of magnitude of the CSM is around 20 billion euros. And the second point which is important is that the CSM end of Q1 23 is bigger than the CSM beginning of Q1 23, i.e., we've produced through the development of the business more CSM that has to be recognized going further than the one we have effectively recognized this quarter, which is clearly an indicator that the business is growing and is developing.

speaker
Pierre Chedeville
Analyst, CIC

In the consumer credit business... Sorry, and the amortization duration?

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Well, the amortization is around, I would say, 10% every year, and this may vary over time because it depends... on market conditions. It depends on many parameters. This is globally the order of magnitude, again, that we have in mind regarding the duration of this CSM. When it comes to consumer credit, are we going to see a decrease in the production of new loans going forward? We'll see. What is true is that with the development of the car leasing business and with all the initiatives that we've taken recently in this consumer credit entity, I think that we have all the capacity to continue to have a dynamic growth of our activities. Of course, if there is a recession in Europe in the coming quarters, there is going to be a slowdown in this business, but it's not the base case that we have in mind. And last point regarding, I would say, the retail banks abroad outside Italy. It's true that the figures are small and much smaller than Italy alone. but I don't see exactly where your return on equity comes from because what I have in mind is that the return on equity is far above the cost of equity of this business and it has a very relative level of return as compared to the rest of the group and as compared to the the overall target of 12% that we have for Casa.

speaker
Pierre Chedeville
Analyst, CIC

And regarding the development of this business, particularly in Poland, do you think you have room to develop it organically?

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Well, we have actually, we see it not as a global business, but as three entities which have their specificities. We have Egypt, where the return on equity is very high. It's very high. It's sometimes... and generally above the cost income ratio, which is an interesting feature. It's a very profitable business. We have Ukraine, where, of course, for the time being, the situation is not very simple. But nevertheless, it's not a loss-making business nowadays. And we have Poland, where we are trying to develop the same kind of setup as the one we have in Italy, for example. We have all the business lines that are present. We have a very... important challenge which is to develop our customer base. We are a second tier or third tier player for the time being in in Poland, but we have a goal of increasing significantly the number of customers, plus 60% over the medium-term plan. And we are on track, because I don't have the precise figure in mind, but we've continued to attract a significant number of new customers. I think it's close to 100,000 new customers in Q1 this year, which is definitely illustrating the fact that we are on track. Okay, thank you very much. Thank you.

speaker
Conference Operator
Conference Operator

The next question, sir, is from Delphine Lee of JP Morgan.

speaker
Delphine Lee
Analyst, J.P. Morgan

Yes, good afternoon, Jerome. Can I just come back quickly on insurance and the impact of RFS 17? I guess it's maybe not easy to understand really the impact, but if you were to quantify a little bit, if we take the impact it has had on the insurance division and corporate center, both for the revenues and for the costs, is that something that we could potentially annualize or you don't think that's relevant and you think we should just take the run rate that we have seen so far in Q1 in terms of revenues and costs just to try to understand a bit how to forecast this division. The second question is on French retail. Revenues are down 5%. I mean, do you expect further NII pressure in coming quarters, or would you say this is now the run rate and... I mean, even if IVREA is increased in August, that could be managed through other items to offset the negative impact. And then the last really quick question is just on capital. I mean, I think you were guiding before to 10 basis points of trim. Is that still coming or not really? Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Okay, Delphine. Well, as far as insurance activities are concerned, Of course, I leave you make your own assumptions regarding what is a relevant run rate for our revenues and our cost base. What I can say is, first point, again, the level of revenues that we publish for Crédit Agricole Assurance in Q123 has no one-off related to the transition to IFRS 17. So it's been definitely a good quarter for Crédit Agricole Assurance. a good quarter from a commercial viewpoint with a significant level of inflows and inflows of good quality because mostly on unit link products for the life insurance activities, a good quarter also for the net premium income for PNC and protection businesses, and a good quarter also from a technical point of view in PMC activities where the combined ratio decreased as compared to what it was one year ago. So all in all, a good quarter for the activity of credit and credit assurance and also a good quarter in terms of market. And again, this is now an important element for assessing the revenues at Crédit Agricole Assurance. But the level that we post this quarter has nothing to do with one-offs. When it comes to the cost base, of course, it's much more difficult to assess what it should be because you know that the cost base has been divided probably by three as compared to what it was last year because of this transition to IFRS 17. So part of the cost base is directly impacting the revenues and this offsetting of the cost base makes it probably more difficult to assess what is the good run rate for the cost base. Just maybe an illustration which is showing that we continue to be very wary about the cost base of the insurance activities is the fact that in terms of budgeting the cost base of the insurance activities, of course, we will continue to look at the global cost base and not only at the cost base that is recognized under the cost line. You said it yourself. We don't know exactly up to where rates are going to increase. So we don't know exactly, be it the rate for regulated savings accounts or the market rate. And we have to expect the end of the normalization of the monetary policy to fully assess what is the run rate of the net interest income at LCL under a stabilized rate environment, which is not the case now, but which is going probably to happen in the middle of the year. When we talked about globally 2023 for LCL, what we had in mind was that the Livrea effect on LCL revenues could be around 200 million euros, of depletion of the top line between 2022 and 2023, with the assumption that the livret A was going to bear, in average for 2023, a 3.5% rate, which is compatible, I would say, with a further increase next August. But again, we have to see exactly where rates stabilize before we are able to say that we have reached a run rate at LCL. In terms of capital headwinds ahead of us, we have two elements that we can mention besides all the elements that are related to M&A transactions. And you know that we are going to close the acquisition of RBC European activities in the beginning of the third quarter this year. But in terms of regulatory headwinds, we have two elements. Trim, which is going to represent the last slice of, I think, 4 billion RWAs this year. And then the last steps of IFRS 9 phasing out, which is going to be five BIPs in 24 and five BIPs again in 25.

speaker
Conference Operator
Conference Operator

Thank you very much.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you.

speaker
Conference Operator
Conference Operator

The next question is from Gulnara Saitkulova of Morgan Stanley.

speaker
Gulnara Saitkulova
Analyst, Morgan Stanley

Hi, good afternoon. This is Gulnara from Morgan Stanley. Thank you for taking my question. So my first question is on asset quality. So far, we have seen a very benign trend in the cost of risk, and you are currently below pre-COVID levels. How would you expect the cost of risk to evolve in the coming quarters? Would you expect it to continue to be resilient in the second half of this year, or should we expect some meaningful deterioration here? And which parts of the books you are monitoring more closely? And a second question, a follow-up on M&A, because you have disposed some of the assets recently, for example, in Morocco, in Romania, in Serbia. And do you think we could see more to come to simplify your business perimeter? Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you. In asset quality, what we see nowadays, to be as precise as possible, is that we have some slight signs of deterioration that explain actually most of the increase in the cost of risk this quarter in two areas. The first area is in consumer credit. We have already said it in Q4 last year. We say it again this quarter, and actually CACF has already taken some steps in order to strengthen the lending criteria in order to moderate the potential further increase in the cost of risk. So this is an area which is perfectly identified, and we know that we have the tools in order to curb the situation if needed. The second area in which we see some slight signs of deterioration in the cost of risk is related to retail activities, so mostly regional banks and only slightly LCL in France. It's related to self-employed professionals or very small SMEs, especially new SMEs that haven't had tested their business models under the present economic conditions. So those portfolios don't represent a significant amount of loans at LCL and so at CASA, but we monitor the situation closely. When it comes to the other categories of loans, and especially to the big categories of loans, which are especially the corporate loans at CASIBS at CASIB and the home loans globally within the group, we see absolutely no sign of deterioration and we continue to see a very, very good asset quality and a very benign risk context. When it comes to M&A and disposal, potential disposal, we have no specific project. We are not working on any disposal, and we think that the perimeter of activities that we have now, that we steer now, is perfectly coherent and perfectly satisfying. So no specific project going forward.

speaker
Conference Operator
Conference Operator

Very clear. Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you.

speaker
Conference Operator
Conference Operator

The next question is from John Peace of Credit Suisse.

speaker
John Peace
Analyst, Credit Suisse

Thanks. Hi, Jerome. This is a nice quarter for Clotilde to leave with. Just one question on revenues, please. You obviously talked quite a bit about the beat in insurance, but there was quite a strong beat in international retail, also in large customers. I appreciate FIC can be quite volatile, but is there any sort of unsustainable elements you would call out or Do you think that 3.5% CAGR that you have under your 2025 plan for revenues is potentially quite conservative? And then I had a second question, please, just about Russia. I guess the balance came down a little bit. I think it's probably going to accelerate through the course of the year, but it's still a biggish number. Would you anticipate any further need for provisioning? Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you. Well, definitely. Again, when it comes to medium-term targets, we are always conservative. It may be a default, but it's definitely part of our DNA. So we are not going to update and increase our revenue targets, but when we assess across the board the different targets, that we've been able to post this quarter specifically. Of course, there is going to be some volatility at CACIB and especially in the fixed income business, but what we think definitely is that CACIB is progressively enhancing its status, I would say, on the market, enhancing its positioning towards its big customers, enhancing the capabilities of its teams. So definitely, the actual level of revenues going forward is going to depend on the appetite of our customers to undertake new operations. But definitely, if they want to develop their business, CASIB is going to be more and more one of the preferred providers for these clients. And so I think that this is globally generating a new normal level of revenues for CASIB. And in the other businesses, well, we've been developing the balance sheet. We've been developing the portfolio of loans, especially at CACF, and we intend to continue to develop the portfolios. So this should indeed provide support for the development of the revenues going forward. So, yes, I'm comfortable with the 3.5%. CAGR level of revenues going forward and if we can beat this target, we are happy to do so. Russia, you have on the slide a page that is giving some details on the Russian exposure and I'm myself going directly to this page 47. We are now at 2.7 billion of of exposure end of March and actually it's 2.4 end of April so it's continuing to decrease quite smoothly without additional cost and seen from now we see absolutely no reason why we should increase the level of provision and actually as we don't consume those provisions and as the total amount is reducing progressively, the coverage ratio is increasing permanently. So no worry on this front. And of course, we continue to monitor the situation closely. We take advantage of every opportunity to accelerate the exit if possible. But for the time being, no need for additional provision and nothing is foreseen on this front.

speaker
John Peace
Analyst, Credit Suisse

Great. Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you.

speaker
Conference Operator
Conference Operator

The next question is from Stefan Stallman of Autonomous Research.

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Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Hello, Stefan. Hello. Can you hear me?

speaker
Stefan Stallman
Analyst, Autonomous Research

Yeah, sure. Perfect. Thanks for taking my question. And thanks for the additional disclosure on your deposits. And I wanted to ask two questions on that, please. The first one is that the only deposit category that is really down year on year meaningfully is with financial institutions, which is down double digits. And I was wondering if there's any particular driver here to highlight that would explain this reduction. And then on the other side, you have the regulated deposits, which obviously went up quite a bit, plus 17% year on year, not a surprise. I was wondering if you had to take a guess how much of this increase is actually coming from clients shifting deposits other deposits into regulated deposits and how much is actually coming out of balance sheet savings like maybe insurance contracts. And also related to this, if rates remain where they are, if they are rates in particular, if they were to remain where they are, do you think there would be another leg up of growth of regulated deposits? or has this process basically largely run its course now, given where rates are now? Thank you very much.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Good question, Stéphane. It's difficult to be very precise because, of course, we would have to study the behavior of every of our 37 million customers, which is difficult. But nevertheless, when it comes to deposits coming from financial institutions, and it's also the case for large customer deposits, it's clearly driven by the price from the side of our clients and from our side. It means that actually we have the capacity permanently to send the price signals in order to either attract or moderate the deposits coming from those two categories of clients. And we do it. This is part, I would say, of the permanent monitoring of the liquidity position of the group. And I personally have a b-monthly committee that is precisely addressing those issues in order to fine-tune the monitoring of our liquidity position. And it's perfectly natural. It's really something that is managed completely differently from the 67% of our deposits that come from individuals and SMEs, where, of course, it's much more granular. Rates matter, but definitely it's a much more granular deposit base, and it doesn't behave the same way. When it comes to inflows into regulated savings accounts, I think that most of what we've seen in terms of inflows came actually from side deposits. We haven't seen movements from off balance sheet savings to Livret A or Livret de développement durable because of balance sheet it's mostly life insurance so effectively for the time being the profit sharing rate of euro denominated contract in life insurance activities are still below the 3% rate that you have on a livret A, but it's a rather complex operation to withdraw money from a livret A. from a life insurance policy and to put it on the Livret A. So most of what we've seen coming into the Livret A and other regulated savings account came from site deposits, which is absolutely natural. And going forward, I think that the future evolution of the amount deposited on Livrea is of course going to depend partially on the level of trades, but also it's going to be impacted by the ceilings that apply to these regulated savings accounts. Because there is a ceiling which is at 20 or 22% 1,000 euros for a livret A, and once you've reached this level, it's not possible to put additional money. And what we think and what we see is that more and more, all the households that have enough liquid savings, have enough cash, have progressively saturated their livret A and other livret de développement durable. So an increase in rates is going to represent a cost for us, is going to present a benefit from them is not necessarily going to present a massive engine for further swings between side deposits and regulated savings accounts.

speaker
Stefan Stallman
Analyst, Autonomous Research

That's very helpful. Thank you very much.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you.

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Conference Operator
Conference Operator

The next question is from Amit Goel of Barclays.

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Amit Goel
Analyst, Barclays

Thank you. I've got to one more follow-up. I appreciate you don't want to kind of be drawn too much on the targets as such. But just wanted to understand in terms of the revenue progression, clearly very strong in the quarter. Are you thinking, if I took the 3.5% off the original 21 revenue base, I was getting to something like 26 billion of revenues. We've had IFRS 17, so potentially some rebasing there. Are you still thinking about achieving a similar type of number or better? And then secondly, I appreciate, again, cost control has been strong, but if you are able to generate a bit more revenue, would you look to invest a bit more into the business or would you continue to run with the same type of cost run rate? And then just a small... additional question. Just on the consumer credit revenues, just wanted to make sure I answered the comments about, so there's a contraction in product margins in 2022, so impacting the year-on-year comparison. Has that contraction kind of finished now, or is that something that is continuing at present? Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you. Let's start with the revenues. The 3.5% year CAGR over the medium-term plan was taking into account the reduction in revenues coming from what is called the attributable expenses that are now directly impacted on the top line within the insurance activities. but this didn't take into account the restatement of what is called the internal margin which was an issue that was still at stake still under discussion when we published the medium-term plan that is representing an additional effect of reduction of at the same time the cost line and the top line and as as you've seen the first effect the effect that is within Crédit Agricole Assurance represented one percentage point of cost-income ratio. The second effect, restatement of internal margin, is another one percentage point of cost-income ratio. So it means that probably in terms of revenue evolution, IFRS 17 has an effect that has doubled as compared to what we had in mind when we published the medium-term plan. reaching this 3.5% in this context is already a challenge, I would say. But again, if we are able to beat that, we're happy to do so. In terms of cost base, of course, we have a certain margin because we are now at 54% cost income ratio when we try to be below 58. So definitely, we have a margin. And this is providing us comfort not to spend and forget this cost discipline that is really part of our DNA, but possibly to invest. And you know that we want to invest in the development of those new businesses related to energy transition and to the access of all our customers to health services on the territory. So we are going to see whether we are able to accelerate the development of those businesses going forward. But of course, without our capacity to preserve this less than 58% cost income ratio target, whatever the circumstances. Last point on consumer credit margins, maybe I have not been clear enough, margin on new have significantly shrinked over 2022 and they have started to improve again a little bit in beginning of 2023, so Q1 2023. So we are heading to a further improvement on margin on new loans on CACF, that's now very clear. And again, this is due to the fact that progressively the Agerari rate has increased and is now increasing on a monthly basis in France. So definitely this helps a lot to improve the customer rate and to improve the margin for the new loans.

speaker
Pierre Chedeville
Analyst, CIC

Got it. Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you.

speaker
Conference Operator
Conference Operator

The next question is from Chris Harlem of Goldman Sachs.

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Chris Harlem
Analyst, Goldman Sachs

Yep. Morning, everybody. Just two quick questions from me. I know you don't have guidance for 2023, but if you did have guidance, do you think you'd need to raise that today? So sort of which businesses are performing most ahead of your own expectations? And then secondly, on slide 27, you talk about higher financing rates impacting revenue growth in leasing and factoring. Could you talk a little bit about how you expect higher rates to impact those businesses going forward and how that higher rates backdrop feeds into your thinking around the broader medium term mobility ambitions?

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Difficult you know to of course internally we try to reassess regularly the landing point end of 2023 what is for sure and what is now an improvement all things being equal as compared to what we had in mind three months ago is the reduction in the contribution to the single resolution fund that is clearly something that is an improvement as compared to what we had in mind globally for 2023. For the rest, of course, we expect a significant part of the improvements that we've seen in the first quarter to be sustainable, but you know that on CIB activities there is always a certain volatility, not due to our capacity to generate revenues, but mostly due to the behavior of customers. And for retail activities, as I've said, we continue to depend on the future evolution of rates, and it's difficult for us to assess a run rate before we see a rate stabilizing probably in the middle of this year. So it's not only not a habit for us to provide guidance, but it's probably also too early definitely to be sure of what's going to take place in the second part of the year. In leasing and factoring activities, well, the higher financing rate is clearly putting pressure on the margins, but the outstandings continue to increase quite significantly in the leasing business and in the factoring business. The good news is that in the present inflation context, all the contracts that we have signed in the past are actually increasing because of the inflation in the billing of our customers to their own customers so it's globally a context in which volumes are going to be up and we hope that we are going to be progressively be able to repass the customers the increase in in financing rates okay thank you very much

speaker
Conference Operator
Conference Operator

The next question is from Anke Rengen of the Royal Bank of Canada.

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Anke Rengen
Analyst, Royal Bank of Canada

Yeah, thank you very much for taking my question. I just had a question regarding the financing activities within the large customer segment, and it sort of like keeps on to positively surprise me. And I just wondered, given the environment is not quite as supportive for large corporates where the growth is sort of like coming from, I guess, as different products, but also are you gaining market share there? And what's your view on the outlook for your large corporate financing activity? And then maybe just about the margins on the financing part, because I guess LTLTO would have played a role here as well. I just wondered how successful you are in passing this cheaper funding cost over to your customers. Thank you very much.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Thank you. Well, in the financing activities of the CID, of CACIB, Just bear in mind that CASIB, and we are perfectly comfortable with this idea, CASIB is here mostly to finance corporate customers. We can do it through our balance sheet, or we can do it through the markets, debt capital market or securitization, but definitely the biggest part of the business of CASIB is to be present vis-à-vis large corporate customers globally, and to provide to them the different financing solutions that they need with a permanent assessment of the relative pricing of the different solutions that we are able to propose. So clearly, we think that this I would say raison d'être of CACIB is relevant, I would say, mostly permanently. And what we see around us is that many, many large corporates continue to have significant projects, significant investments they want to make, especially in the field of energy transition. And so the potential of development of this business continues to be very, very good. In terms of being able to repass the financing cost, it's a business where it's mostly a margin spread business. So it's not very difficult to be able to repass to the customers the increase in market rates. And the TLTRO drawing that we've taken, well, we know that for the group, this represented €200 million globally on a quarterly basis of additional revenues. We no longer have them. It's not really an issue per se. it's a revenue that is disappearing and starting at the end of 2023, we will no longer have the basis effect, and it's not impacting our relationship with our customers. So I think that's the bulk of what I could say on that.

speaker
Conference Operator
Conference Operator

Yes, thank you very much. Thank you. The next question is from Kiri Vijayaraha from HSBC.

speaker
Kiri Vijayaraha
Analyst, HSBC

Yes, afternoon, Jerome. A couple of questions from my side. So firstly, on slide nine, coming back to the mobility topic and the acquisitions you've done there, I'm just curious, why did some of the portfolios you bought from ALD Lease Plan fall into the joint venture? And then in some of the other geographies, you put the acquisitions into your wholly owned subsidiary, the new CA Auto Bank. So what's driving the differentiation? And also, what's your priority in terms of growth? Is it the long-term contract fleet in the JV, or is it the CA autobank fleet that you'd prioritize for growth if you had the choice between those two portfolios? And then second question, when I look at Credit Agricole Group, you're showing revenue growth of 1.8%, and of course, CASA, much stronger, you've posted growth of 10%, over 10% this quarter. Just trying to reconcile slides five and slide six, That kind of implies revenue contraction at the regional banks excluding CASA, if I'm right. So just really what's driving those kind of revenue headwinds at the regional banks ex-CASA. From what you were saying earlier, I'm not sure there's any, I don't think there was any distortion there in terms of IFRS 17. So just trying to get to the bottom of that kind of revenue headwinds for the regional banks ex-CASA, please. Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Okay. Thank you, Kiri. First, why did we split the acquisition coming from ALD and Listland between the JV and CA Auto Bank? It's very simple. Some countries were covered by the JV agreement with Stellantis. It's the case for Portugal and Luxembourg, and we have an exclusivity in these countries. So definitely, it was absolutely the name of the game to to bring those activities to the JV. And in Ireland, Norway, Czech Republic and Finland, if those countries are not covered by the JV, so definitely as they are covered by a credit called Autobank, we have included those acquisitions and we are going to include those acquisitions in our own 100% setup. It's simply a matter of which countries are covered by the JV and which countries are covered by ourselves only. Second question, which are our priorities? Our priority is to develop at the same time the JV and Crédit Agricole Autobank. They are not covering exactly the same scope of clients and the same scope of businesses. The JV is covering all Stellantis branches in a certain number of European countries for the fleet business. So it's a long-term car rental fleet business in a certain number of countries, and the carmaker is Stellantis. Crédit Agricole Autobank and Drivalia, they are dedicated to different businesses. Crédit Agricole Autobank is Car financing, so car loans, not car leasing. Drivalia is car renting, car sharing, and different mobility services. And they are addressing all small car makers that are not big enough to have their own car loan captive. and also some independent car dealers that are not linked to specific car makers. And so we are going to develop the JV as fast as we can with Stellantis, and at the same time, we are going to develop Crédit Agricole Autobank on those specific businesses as fast as we can at the same time. When it comes to the difference between the revenue growth for the group, 1.8%, and for CASA, 10% plus, well, the difference is clearly, as you've said, the fact that we have had a revenue depletion at the level of the regional banks under IFRS 17, but there is no impact of IFRS 17 within the regional banks, of course. And this revenue depletion is explained by the fact that the regional banks have no longer the TLTA withdrawing, that they have a significant amount of Livrea and other regulated savings accounts, and that they continue to have a significant amount of state-guaranteed loans. with a fixed and very low rate, around 12 billion euros at 0.5% in average, that are going to progressively amortize, but that are costly to refinance. So all these elements, of course, are weighing on the net interest income at the regional banks, and despite the increase in fee and commission income, plus 1.6%, all in all, The revenue base is down 9.3% for the regional banks.

speaker
Kiri Vijayaraha
Analyst, HSBC

Great. Thanks, Jerome.

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Conference Operator
Conference Operator

Thanks. The next question is from Mate Nims of UBS.

speaker
Mate Nims
Analyst, UBS

Yes, good afternoon, and thank you for the presentation. I have two questions, please. The first one is on Italy. Clearly, you had a very strong revenue turnout this quarter. The loan book is flat, so clearly, We are seeing quite some margin expansion there. I'm just wondering if you could give us a sense about margin dynamics in the next few quarters. Are we to see a margin peak perhaps in the next one or two quarters, or do you expect this to be more of a longer duration story? The second question is on the joint venture with Worldline and payments. I was just wondering about the revenue potential of this JV. What shall we expect here, and to what extent this JV is factored into your 300 million revenue aspirations in payments that you presented last year? Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Let's start with Italy. In Italy, we are in a different model for the net interest income than in France, obviously, and clearly there is a very fast resetting of the asset yield because, you know, half of the loan book is either floating rate or adjustable rate. So definitely the customer rate in average on the asset book is increasing quite rapidly and between beginning of 22 and beginning of 23, it has more or less doubled. At the same time, There has been a significant increase in the cost of the customer liabilities, but much, much slower. And so this is triggering this very sharp increase in the net interest income. Definitely going forward, there is not going to be another doubling of the customer rates on the on the asset side, on the loans, because again, we don't know exactly where rates are going to end and at what time, but I do not expect another doubling of the level of rates going forward. So I think that clearly we have had in the last few quarters the biggest part of the increase in net interest income, and we are going to progressively see things stabilize. But again, it depends exactly when the movement in rates is going itself to stabilize. For the JV with Worldline, so we've signed the agreement. We are now working hard in order to launch the JV, to create the JV itself probably end of this year. The JV is going to invest, is going to progressively attract the contracts that we are going to provide to them to bring to it. So this is going to be a slow process. And so the revenues that we are going to be able to extract from the JV are probably going to be beyond the medium term plan date, i.e. 2025. But until then, the revenues linked to payments that are booked in the regional banks in LCL are going to increase sharper and more rapidly than the market in average. This is what we target, and this is going to fuel the growth of our retail banking activities in France during the medium-term plan. Thank you.

speaker
Conference Operator
Conference Operator

The next question, sir, is from Matt Clark of Mediobanca.

speaker
Matt Clark
Analyst, Mediobanca

Hello. Coming back to IFRS 17, I'm afraid. Just trying to understand originally, as in a year or two ago, I think your guidance was that there would be a trade-off between the P&L impact on a go-forward basis of IFRS 17 and the upfront capital impact. And originally you were guiding or saying that you would manage the capital impact so that there was a negligible P&L impact there. to the go-forward earnings contribution. So I guess firstly, did I have that original approach correct? And then in the out term, the capital impact was clearly much better than you were originally expecting. So I'm wondering, has the run rate P&L impact of IFRS 17 also changed versus your original negligible impact expectation? And if so, How has that now changed? Because there are obviously some very material swings happening across the P&L and insurance and corporate center. Just trying to look at the big picture, are things better than you were originally expecting? And should we be reflecting that in our expectations going forward? Thanks.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Yes, it's true that one or one and a half year ago, we were guiding towards this trade-off between P&L and upfront capital impact. That's absolutely true. What has happened in the meanwhile is two things. The first thing is that actually the unrealized capital gains that we had at that time, i.e. one and a half year ago, has transformed into a significant unrealized capital loss. And definitely as what we had in mind was that these unrealized parts of our balance sheet was partially to be transferred into our own funds, this has radically changed the situation. And I would say that the transition to IFRS 17 has led to upfronting most of the pull-to-par that we expected going forward linked to the OCI reserves. When the OCI reserves were positive, the pull-to-par was going to be negative, and up-fronting one-off the pull-to-par was representing a negative impact. When the OCI reserves became negative, the up-fronting of the pull-to-par provided an improvement of the capital position one-off. In addition to that, of course, IFRS 17 is a very technical regulation, and what the teams did at Crédit Agricole Assurance was to try and optimize as much as possible the breakdown of the asset books in order to moderate as much as possible the potential negative impact on the P&L, and if possible, to improve the positive impact on the P&L. And so there has been some significant changes in the organization of the asset books at Crédit Agricole Assurance since the start of the workload on IFRS 17 in order to accommodate as well as possible this new regulation, and it proves to be efficient.

speaker
Matt Clark
Analyst, Mediobanca

Are you saying, therefore, that you now expect there to be a positive impact on the P&L over the next few years from the transition to IFRS 17 compared to if you had remained on an IFRS 4 basis?

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Well, we are not going to be able to compare the IFRS 17 P&L that we are going to recognize going forward with what it would have been under IFRS 4. It's not going to be possible. But what I've said regarding the potential run rate of our revenues under IFRS 17 is that what you've seen in the first quarter of 2023, depending of course on market conditions and depending on our level of commercial activity is not something specific to this first quarter and is something that is much more possible to replicate, I would say.

speaker
Matt Clark
Analyst, Mediobanca

Okay, and sorry, just one final follow-up. In terms of market conditions that would mean you might not be able to generate that sort of result going forward, what sort of, you know, can you give an example of a quarter that would have had a material adverse effect?

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

You know that under IFRS 4, there is a much closer relationship between the evolution of assets and liabilities when it comes to market conditions. So normally, the volatility linked to market conditions is partially offset by the fact that liabilities should move in the same direction as assets. But nevertheless, assets under IFRS 9. But of course, there can be some discrepancies. And so I don't know exactly what example I could name, but definitely we can have circumstances in which certain market movements are reducing the value under IFRS 9 of the asset book. Whereas at the same time, we are not able to recognize a reduction in the value of our liabilities under IFRS 17. So we are going forward to learn quarter after quarter how it behaves. I think we did whatever we could. in order to moderate as much as possible the volatility. But now IFRS 9 plus IFRS 17 is the fact that we are on a mark-to-market basis, both on the asset side and the liability side. Okay. Thank you for your patient answer. Thank you.

speaker
Conference Operator
Conference Operator

The next question is from Benoit Vallaud of Odoo.

speaker
Benoît Vallaud
Analyst, Odoo

Yes, just a little too short follow-up question on my side on insurance. The first one is on capital. We've seen an increase of around 50% in the SCR over Q1. I just wonder if you can give us some granularity behind this increase. For example, did you suffer from a change in the AEO per reference portfolio in Q1? And what could have been the impact from financial markets? And linked to this, can you please let us know what has been the evolution of your insurance activity and maybe more specifically for Predica? And the second question is linked to IFRS 17, you mentioned assets. I have just one question related to your real estate portfolio. Just would like to know if the totality of your real estate portfolio is booked at cost or if part of it is booked at fair value through P&L just to understand if Potentially credit evaluation might impact or not the contribution from insurance. Thank you.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Many technical questions. The first one was related to the STR. I don't have in mind precisely the elements to answer to your question. I don't know, Clotilde, if you have any precision you can give to Benoit.

speaker
Clotilde Delbos
Chief Financial Officer, Crédit Agricole SA

I'll give it to you, Benoit, going forward. But I think that what we can say in this quarter is is that, in particular, besides the revenues that were strong in terms of savings and retirement and P&T, we have had a favorable claims trend that has decreased our combined ratio, so that is something that I can change. But all of this is activity or environment-related and not a change in IOPA reference portfolio.

speaker
Benoît Vallaud
Analyst, Odoo

Okay. And regarding Solvency II or Predica, you have any view on trends?

speaker
Clotilde Delbos
Chief Financial Officer, Crédit Agricole SA

And we don't disclose anything regarding change in solvency, as you know, in the first quarter, because we stick to the solvency figures that we had at the end of 2022, which were very strong. As you know, our solvency figure includes the reserve that we call the PPE, which decreased a little bit at the end of 2022, but that remains quite strong. And the increase in rates also has a positive effect going forward in this regard. So we're very comfortable with our solvency ratio as of today, even in the Q1, and we'll give you corresponding figures in the Q2.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Yeah, but definitely bear in mind that end of last year, solvency to figure was far above 200%. So definitely we continue to be, I would say, even above our steering target.

speaker
Benoît Vallaud
Analyst, Odoo

Okay. And regarding sensitivity to realistic valuation?

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Well, we have real estate assets in the book of Crédit Agricole Assurance and Predica, but it doesn't represent a very massive amount. It's less than 10% of the assets of Predica, so it's significant, but it's not absolutely massive. And in addition to that, in the present environment, there is a pressure on certain real estate assets because of the way they have been financed, i.e. some investors have financed their real estate assets through debt. So, of course, they are facing a significant potential increase in the cost of their funding. And so this is putting some pressure on them and insurers. does not have, by definition, it's mostly financed with the deposits of the policyholders, so there's no issue regarding any kind of leverage. And rents are benefiting from the inflation nowadays, so the revenues that are generated by real estate assets are increasing nowadays. Okay, thank you.

speaker
Conference Operator
Conference Operator

The final question is from Jacques-Henri Goulard of Kepler-Shivro.

speaker
Jacques-Henri Goulard
Analyst, Kepler-Cheuvreux

Jacques-Henri, hello. Yes, good afternoon, everybody. First of all, Clotilde, thank you very much for everything. I was about to ask you to answer directly that follow-up question, but you already talked, so fair enough. If you want to answer it, answer it. It's a follow-up on the outlook, and it's true that when you read the Q4 2022 press release, it's pretty dry. I remember it says, you know, in 2023, continued adaptation to the new rates context. So I understand the answer you gave to my colleague about the SRF variation, which was a big impact, which is true. But even if I was to actually increase that SRF contribution of 22 by 100 million, you would have still beaten consensus by 20%. So I wanted to know if you found... that the activity accelerated towards the second half of the quarter, or what basically drove you to be that conservative? That's the first question. And the second one, good old 81 coupons are a little bit higher. On the back of your outstanding of about 8 billion, that suggests a yield of 7.8%. Is it a good yield to take for the rest of the year, or too high, too low? Just a bit of guidance. Thank you. And thank you again, Clotilde.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Of course, I will leave the last words to Clotilde, but maybe just a few words on what we've said end of 2022 and why we look a little bit conservative. Remember that back three months ago, there was a lot of uncertainty regarding the rhythm, the pace at which the central banks were going to hike. and we know that we were going to lose at group level several hundred of million euros of revenues coming from the TLTRO and we were a little bit I would say doubtful on the potential evolution of the economic outlook because actually there was at that time a significant possibility of seeing a recession in France and Europe. I think the landscape has significantly improved since that and clearly what we have seen in the first quarter of this year was a level of activity across the board which was significantly above what we had in mind in a more gloomy landscape than the one that we had back in end of 2022. So, Clotilde, maybe you can also answer on the 81.

speaker
Clotilde Delbos
Chief Financial Officer, Crédit Agricole SA

On the 81?

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Yes, there was a question on the 81 from Jacques-Henri.

speaker
Clotilde Delbos
Chief Financial Officer, Crédit Agricole SA

No, there was a question on Outlook, on the consensus, right?

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

On the 81.

speaker
Jacques-Henri Goulard
Analyst, Kepler-Cheuvreux

There was also a question on the 81.

speaker
Clotilde Delbos
Chief Financial Officer, Crédit Agricole SA

I missed the question on 81, but as you know, we don't disclose any of our... plans on H1 because it's outside of the funding plan.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

No, it's a matter of remuneration.

speaker
Clotilde Delbos
Chief Financial Officer, Crédit Agricole SA

Oh, it's a matter of the coupon. The coupon, yeah. Very high. Yeah, well, all of this depends on market conditions, as you know. And we'll see what happens in terms of the calls depending on the market conditions. These conditions have changed.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

So we always have to be flexible in terms of these... But I think that globally, the coupons are not split equally on the four quarter of the year. So probably if you assess the average cost of our 81 simply on the basis of the Q1, I think that you would not necessarily end with the relevant average cost of 81 bonds. Okay. I guess this is the answer. And we have a last question. Jacques-Henri, I'm sorry, you were supposed to be the last one, but there is a last after the last. So Clotilde is going to take this last question.

speaker
Conference Operator
Conference Operator

The last question is Kumar Sharad of Deutsche Bank. Please go ahead.

speaker
Kumar Sharad
Analyst, Deutsche Bank

Hi. So I just had one question pending on your LCR ratio. So in the press release, you do mention that your medium-term target is 110%. So is this a floor or do you realistically envisage lowering your LCR over the medium term? So although I appreciate you maintaining a higher level of liquidity in the current circumstances, but just wanted to have possibly medium term color on what the targets could mean. Thank you.

speaker
Clotilde Delbos
Chief Financial Officer, Crédit Agricole SA

So maybe I'll answer in fact because I got this question. I'm sorry I didn't get Jack all these questions, but I got this one. I heard this one. So yes, indeed, the target is 110%. And today, we're quite above this target. But as you know, we are also above this target because of the TLTRO. And the surplus that we have today is, of course, stronger than the TLTRO. And we designed our NTP targets in terms of liquidity coverage ratio, but also in terms of stable resources position, supposing that we would have to reimburse TLTRO. which we will do, and so we're quite comfortable with these targets going forward. So these include the repayment of the TLTRO.

speaker
Jérôme Grévé
Deputy Chief Executive Officer, Crédit Agricole SA (Steering and Control)

Okay. Well, I think this was the very last question, definitely. Thanks, all of you, for attending this meeting. Thanks also to Clotilde for the I haven't counted the number, but probably 15 or 16 meetings. And welcome to Cecile, who was very steadily listening to this call, and she's going to be ready as an interlocutor for you starting tomorrow. Bye-bye to everyone.

speaker
Conference Operator
Conference Operator

Bye, everyone. Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.

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