Credit Agricole Sa

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.

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.

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.