Credit Agricole Sa

Welcome and thank you for joining the Credit Agricole Half Year 2023 Results Conference Call and Webcast. 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 1 on your telephone. Should anyone need assistance during the conference call, then they signal an operator by pressing star and 0 on their telephone. At this time, I would like to turn the conference over to Mr. Jérôme Grivier, 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 for our Q2 and first half of the year results, not only because the results are good, but also because just after this meeting, most of us will be on vacation. To be more serious, we are posting very solid results for this quarter and the first half of the year. Let me start with page 4, where you have the main figures. First, it's a net profit above 2 billion euros for Credit Agricole SA and close to 2.5 billion euros for the group globally. We post also a very high level of return on tangible equity at CASA and a cost-income ratio, which is significantly improving both for CASA and for the group. This is the result of a very good level of organic commercial activity and also the continuation of the integration of the different M&A transactions that we've been able to conclude earlier. And this quarter, we announced also a new transaction that we will probably comment, which is the signing of an agreement for the acquisition of a majority stake in the capital of Banque de Groupe. Last point on this page 4, Credit Agricole SA is now ranked top of Devasified Banks in Europe in the ESG rating by Moody's Analytics. On page 5, you have a more detailed set of figures for Credit Agricole SA. What you can see is that we are posting the highest ever results on a single quarter and on a single half year, both in terms of stated results and also underlying results. And this starts with a very high level of revenues, a very sharp increase of the top line. It is also boosted by a very moderate evolution of the cost line, especially in the inflation context that we are having. There is an increase in the cost of risk, but the cost of risk remains at a very moderate level all in all. And so this is leading to this high figure of net profit. For the group, we have more or less the same trends. And on page 6, we have a sharp increase in the top line, close to 10% increase of the top line in the underlying figures. An evolution of the cost base, which is also in the region of 5%. Cost of risk, which is increasing a little bit, but again remaining at a moderate level. And net income that is up on the quarter and up also for the first half of the year. Last point, the solvency of the group remains very high at 17.6%. If we dig a little bit into the key PIs of the development of the commercial activity, you can see on page 8 that we've been able to attract a significant number of new customers in our retail banks in the quarter. Close to 500,000 new customers in gross figures and an increase in the customer base by above 100,000 customers. We continue to increase the equipment of those customers with our different products and services, namely and among different services, the PNC policies. We've been able also to generate a very significant dynamic in the business in insurance, both life and non-life. In asset management, you've seen that Amundi has posted positive inflows in the quarter. In the consumer finance business, the dynamic is also very good with especially a very strong momentum in the distribution of different financing for cars. And in the CID, it's also been an excellent quarter in different activities like structured finance and also repos, primary credit, debt capital market and securitization. There has been indeed a slowdown in the production of new loans by our retail banks. This is due, of course, to the environment of higher rates, which precludes a certain number of customers from borrowing. But definitely the overall activity in the retail bank has continued to be good. And this is illustrated by the evolution of different categories of customer deposits, be it on balance sheet or off balance sheet, which continue to evolve positively on the quarter. If we analyze a little bit on page nine, the origin of this very strong evolution of the top line, you can see that on an underlying basis, the evolution is plus 15.6 percent. On the stated basis, it's close to 19 percent increase. This is the result of a good evolution in almost all business lines, actually. In the asset gathering business division, there is a strong improvement of the revenues at Crédia Récol Assurance. And of course, there is an effect in connection with IFRS 17, even if Q222 is restated under IFRS 17, of course, for comparison purposes. But there has also been an improvement in the top line at Amundi. In the large customers division, there is a slight decrease. Actually, Cassis has seen its revenues increasing quite significantly. There has been a certain decrease at Cassis, but compared to a very high comparison based in Q222. And so the overall level of revenues at Cassis continues to be one of the highest ever. In the specialized financial services division, a significant part of the increase, of course, is due to the one-offs linked to the reshuffling of our agreements with Stellantis. But structurally now, we have a higher level of revenues in the car financing business, considering the fact that we used to consolidate FCA Bank through the equity accounting method. And we now consolidate globally Crédia Récol autobank, 100 percent of Crédia Récol autobank, instead of half of FCA Bank. And so we now account for the revenues, the costs and the cost of risk of Crédia Récol autobank. In the retail banking activities, there is also some differentiation between the situation at LCL, where the revenues show a very good resilience. But nevertheless, they are facing this increase of rates in France, which is in the beginning costly for retail banks. And there is also a very sharp improvement of the top line in the other retail banking activities in Italy and elsewhere. Lastly, in the corporate center, we have different bits and pieces that are moving. There is one significant contribution that is up, which is the valuation of our stake in BPM. And there are some elements which are down, the fact, for example, that we no longer have any contribution coming from the TLTRO, contrary to Q2 2022. And we no longer have this quarter, any reversal of home purchase, saving loan provision that we used to have in Q2 2022. All in all, you see that the top line is again very significantly up. And if you assess the figures for the first half of the year, you can see that the top line is up in all business divisions. This is also illustrated on page 10, where you can see that this series of quarterly increases in the top line continues over time. And it's been now at least six or seven years that every quarter we are able to post an increase in the top line compared to the same quarter of the previous year, despite the fact that we have changed our reference for the insurance activities. And of course, with the IFRS 17 standard, you know that we now have a lower level of revenues in the insurance business division, all things being equal. When it comes to the cost base on page 11, what you can see on the quarter is that actually evolutions are very, very moderate. But there has even been a slight decrease in the cost base in the asset gathering business division. This is especially the consequence of the integration of Lixor at Amundi. It's also the case within the retail banking business division, especially at LCL. And when it comes to the large customers division, there is an increase, especially at Cassib, which is perfectly correlated to the increase in the level of activity and the fact that we provisioned a significantly higher amount of variable compensation, considering the high level of activity. In the SFS business division, most of the increase is explained by the integration of Crédit Agricole autobank. Now it represents around 60 million euros out of the 70 million of increase. And you have more or less the same trends on the first half of the year. So this is leading on page 12 to the situation where we post probably the lowest ever level of cost income ratio at Caza, .3% for the first half of the year and even closer to 50% if we take only the second quarter. So this is illustrated on the right hand side of this page. We continue to be significantly below the sample of our peers that we follow in Europe. On page 13, some elements in the cost of risk. So apparently there is a sharp increase in the cost of risk at Caza. It's a multiplication by two, but you have to take into account two elements. The first one is the fact that back in Q2-22, there was a reversal in the cost of risk at Casib. So a write down of provisions by around 75 million euros. So now we have around 25 million euros of positive cost of risk. So it makes a significant difference. But overall, the cost of risk at Casib continues to be very, very low. And the second point is that now, as was the case for the top line, for the cost line, we now account for the cost of risk at Federico L'Otobanque. This represents around 25 million euros of additional cost of risk this quarter. At the level of the regional banks and the group globally, there is also an increase, but much more moderate. Overall, the cost of risk in terms of BIPs compared to the outstanding continues to be moderate and below the across the cycle assumptions that we've made when we published the medium term plan. On page 14, you can see that we continue to have a low level of NPL, .6% at Caza and .7% at the level of the regional banks. So overall, 2.1%. It's a very low level and it's more or less stable as compared to the previous quarter. The coverage ratio continues to be very high. Overall, .6% and above 70% at Caza. It's up at Caza, up 0.6 percentage points. And the overall level of loan loss reserves that we have in our BIP continues to be high, close to 10 billion for Caza and above 20 billion for the group, including a very significant component of provisions on performing loans. On page 15, you can see that we continue to compare very favorably to most of our peers, be it at the level of the group globally or also at the level of only Caza. Maybe just an additional precision on this page, we continue to see a decrease in the exposure to Russian counterparts, cross-border Russian counterparts, and we provide details in the appendix of this document. On page 16, this is the consequence of what I just said regarding the revenues, the cost and the cost of risk. The profitability of almost all business divisions increased this quarter and sometimes quite significantly. And if you assess the figures for the first half of the year, there is a positive contribution of all business divisions showing the fact that actually in the present, I would say, circumstances, the diversity of businesses that we have in the scope of the group benefits globally to the group and to its profitability. In terms of financial solidity, financial strength, starting with the solvency and the solvency of the group on page 17, I already said that the solvency of the group remains very high, 17.6%. It's the consequence of actually two elements, a high level of retained results and a high level of consumption of RWA through the organic activity of the different business lines. You can see that the other elements playing on the solvency, methodology, regulatory effects, M&A and other points represent only tiny components in the evolution of the C-T1 ratio. So a situation where the good dynamic of the group is perfectly financed by our capital retention capacity. All in all, we continue to post a distance to strep, which is by far the best amongst all European systemic institutions. When it comes to CASA, you have more or less the same trends with a solvency that remains significantly above the target of 11%, at 11.6%, a high level of retained results, a high level also of organic growth and almost nothing coming from methodology, regulatory effects, M&A and other bits and pieces. This strong organic growth was not this quarter alleviated anyhow by any technical measure and we contemplate to deploy some securitization or other technical measures of easing of the consumption of RWA in the third quarter of this year. Last point on this page, maybe you can see that we have already provisioned a dividend of 50 cents a share. In terms of liquidity on page 19, what you can see is that we continue to have a very ample level of customer deposits above 1,000 billion euros with a significant proportion of that, two-thirds coming from retail customers, which is of course an element of stability considering the granularity of these customer base. Coming to liquidity ratios and liquidity indicators, maybe two elements starting with the LCR ratio. So, despite the fact that we've repaid close to 50 billion of TLTRO end of June, we have end of June, point in time LCR ratio at the level of the group which is above 140% and calculated as usually on the basis of the last 12 months, it's close to 160% at group level. When it comes to the level of reserves, liquidity reserves, there is indeed a significant reduction between end of March and end of June for two reasons. The first one is of course this TLTRO repayment. The second one is that as we had announced, some of our customer assets are no longer eligible to the central bank. So, we have to replace its real estate loans. This channel has been shut at the end of June and already in July we've been able to replace this category of reserves by the creation of a new program of covered bonds which has already issued close to 70 billion of covered bonds, self of course retained, that are eligible as liquidity reserves if needed. So, pro forma this new issuance, we would be again above 400 billion of liquidity reserves end of June. I'm going to end this presentation here in order to let you ask your questions. I just wanted to as a conclusion maybe stress one or two points. The first point is again the fact that we are posting very, very good results overall. The second point is that these results are the consequence of a very efficient business model of the group globally and of CASA specifically that favor both the intensity of commercial activities and the diversification of the sources of revenues that we are able to aggregate. The third point maybe is that when it comes to the effect of the increase in rates, which is the environment in which we live since now one and a half years, we have positives and negatives elements but globally I think that the positives are definitely above the negatives and when it comes to the negatives we perfectly know that it's only temporary. And the last point is the fact that we regularly integrate the activities that we've been able to acquire. It's the case this quarter with the reshuffling of our agreements with Stellantis. It's going to be the case next quarter with the integration of Royal Bank of Canada investor services in Europe. And it's going to be the case hopefully in 2024 with the integration of De Groupe Pétercam when the deal will be closed. Thank you for your attention and we can now go to your questions.

This is the operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Tariq El-Majad from Bank of America. Please go ahead.