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.

Hi, good afternoon everyone. Good afternoon Jérôme. I mean, congratulations for these results. Very great. So they're all very clear. So I will have rather two questions on your announcement you made this morning. The first one on the Qesq Regional buying another billion stake in Gaza. I mean, I heard and I read again your explanation when they did it earlier this year. So maybe you can give us even more color why they would do that. And secondly, from your perspective, how that impacts liquidity or the free float of the shares. And I mean, now by the mid next year, they would increase the stake by almost eight percentage points, which is quite sizable and getting close to 65 percent. So that's the first question. Second one is on capital. So you mentioned in the presentation that you do some securitization or technical optimization of the RWA. So how what size are we talking here in terms of billions of RWA's or maybe ask differently in the previous quarters when we've seen especially actually in Q1 when we've seen this big increase in capital, what was the kind of actions you took back then? And maybe I can squeeze in the last one on Peter Camden-Groove. Can you give us some numbers in terms of benefits from this acquisition? Because 30 basis points is quite sizable investments. Thank you.

Thank you. Starting with the regional banks and the decision announced by our majority shareholder. It's very difficult for me to comment, of course, because it's a decision of the majority shareholder. The only comment I can make in terms of liquidity, free float or whatever, is the fact that the only the increase of the share price today is representing more actually than the amount of liquidity in terms of euro that this operation would take out of the market and of the free float. So definitely there's no worry about the significant free float remaining for the stock. Second point in terms of capital, we contemplate a securitization that could represent around 3 to 4 billion euro in the third quarter of this year. And you know that we regularly do that type of operations in order to monitor the capital consumption. So in this second quarter, there was no need to undertake such a transaction simply because the capacity of generating results was very significant and was ample enough to cover the other way consumption consumption by the business line. But you know that in the past we've been able to be very agile and to be very reactive if needed. So this is what we are already working on for the third quarter. For De Groupe Peter Kahn, it's a significant business, sizable business compared to Indus Wells Wealth Management because in terms of global figures, it represents more or less half of Indus Wells Wealth Management. In terms of revenues, I would say that Indus Wells Wealth Management is in the region of 1.2 billion euros. So this acquisition would be close to half of that, I would say. In terms of cost base, it's more or less in line with what we see at Crédia Econ Indus Wells with the cost-income ratio in the region of 75%. And in terms of RWA, it's around 3 billion of RWA. So it's not very significant in terms of RWA consumption at the level of De Groupe. So this is a transaction through which we expect not only a very high return on investment, far north of the 10% threshold that we have as a minimum criteria, but we also expect a very significant return on equity coming from this transaction because you know that this is a business in which the regulatory capital consumption is low. So we definitely expect this transaction to be very relative for the group globally in terms of improvement of the return on equity. So all in all, we will provide of course more details at the time of the closing of the transaction, but considering the type of synergies that we have identified ahead of this closing, we definitely think that this transaction is going to be very accretive not only for Crédia Econ Indus Wells, but also for Crédia Econ SAE globally.

So that would be like 26 years when synergies would ramp up, right? Yes, exactly. Okay, thank you very much

Jérôme. The next question is from J.H. Goulard from Kepler Schover. Please go ahead.

Yes, good afternoon Jérôme. Two questions for me. The first one is, in light of all the restatements with CACF, I have a run rate at pre-tax level for the division of about 170 million. Do you more or less agree with that on a quarterly level? And obviously, can we assume that this will grow with the years with the contribution from the joint venture with Stellantis, which is equity accounted growing? That's the first question. And the second question is on business model. And when I look at the acquisitions you've done recently now, acquisition or let's say agreements to do business with RBC, the Groove Worldline, obviously we know because it's in their plan that Amundi is off on acquisition by 2025. Everything hints at businesses which are really at lower capital intensity, which means that you are going to need less capital. And, you know, Tarek was talking about liquidity. I would like to talk to you about potentially returning a bit more money to shareholders, although more that your shareholders, you mentioned yourself at the beginning, is very, very rich. Is it something that you should that you could consider with more serenity right now? Thank you.

Well, thank you for those two questions. The run rate at CACF in terms of revenues is structurally going to be increased by the fact that now we account for the CAA autobank in terms of consolidated figures. So you know that this quarter CAA autobank represented around 175 million euros and the net income of around 65 million euros. So the evolution going forward of these numbers is going to depend on the development of the new business. You know that within CAA autobank we have a business which is running off, which is the former business of the former partnership with FCA. And there is a business that is growing and actually growing very rapidly, which is the development of the new business, be it with other car makers or be it with independent car dealers. And actually what we've seen in this quarter, the first quarter of functioning of CAA autobank, is that the ramp up of the new business is going far faster than the runoff of the old business. So this explains at the same time the high level of profitability of CAA autobank in a single quarter. And also the fact that of course globally the business of CACF has significantly increased its RWA consumption. But definitely it's a business that is going quite fast nowadays. So the other point that has to ramp up going forward is the leases joint venture, because for the time being within this joint venture we have only the new business generated by the LeaseCo. There was no capacity of taking on board all the old business because you had to re-immatriculate the cars and so on and so forth. It would be too complicated. So this equity account, the contribution is supposed to ramp up as the business is going to grow, the new business is going to grow within this joint venture. So all in all there is ahead of us a further improvement of the run rate at CACF. And I will of course let you do the math. Your second question was regarding capital. It's true that we have been able to make some opportunistic and strategic acquisitions. And it's true also that we do not choose the highest, the most capital intensive businesses in order to select those acquisitions. You know that in terms of shareholder remuneration, we stick to this idea that first we want to be shareholder friendly, and we've proved it in the past, and second we want to be predictable. And so what is predictable is that we are going to continue to distribute 50 percent of the net income that we generate. And going forward, we think that this will enable us to fuel the organic growth and possibly to fuel also some non-organic growth opportunities like actually was the case since probably four, five, six years. Thank you. Thank you.

The next question is from Delphine Lee from JP Morgan. Please go ahead. Yes.

Good afternoon, Jérôme. Thank you for taking my questions. So my first one is, sorry, just to go back to the regional banks. I mean, this is the second operation they are doing. I mean, is the intention to go to 65 percent? I mean, I do think these two operations are a bit of a shift compared to the past. And so just wanted to understand a little bit better, you know, the rationale for increasing to 65 percent and clearly the market is extrapolating also potentially above that. So I don't know if you can share any thoughts on that. And then just going back to your comment around capital distribution and usage of capital. I mean, so when you say you're shareholder friendly, but you're still sticking to 60 percent, does that mean that we should kind of rule out dividend payouts going up from 50 percent and you're prioritizing a little bit more M&A at this stage? And a little bit related to that, I mean, I guess Amundi is doing acquisition as part of their, this has not always been the case, but just in private banking that it's a bit less frequent. I mean, are you becoming more acquisitive in private banking? Do you have more ambitions to do more of these kind of deals? Just if you can just comment on that, that would be great. Thank you.

OK, thank you. I will not be very long commenting actually the decisions of my majority shareholder. But the only comment I can make is that actually they stick to the framework that they have explained last year. Last year they have said that they wanted to make an acquisition for one billion euros of casa shares and that they didn't want to go above 65 percent. They continue to be in this framework and they reiterated the fact that they do not want to go above 65 percent. So I think that they are happy with the prospect of credit recall essay. They are happy with the performances that we are hosting. They have this capacity of investing an additional billion euros and there's nothing more. And actually, if you have additional questions, I think you should ask them to the representatives of SIS LabOSC. When it comes to capital distribution and capital usage, what I'm saying is that we have two commitments towards our shareholders. The first one is to distribute 50 percent and up to now, even when the supervisor was not very helpful from this point of view, we've tried to find ways of distributing all in all 50 percent of the accumulated results to our shareholders and we did it. The second point is that we think it's better for our shareholders to have 50 percent of a growing income base than 60 percent of a shrinking income base. So what we want to do is to fuel our growth organically first and this is the most important thing. And then when it comes to inorganic growth, we continue to stick to the same principles that we've explained already several times. A very strict financial discipline with a very strict return on investment criteria above 10 percent whatsoever in the first three years of the acquisition. And actually, most of the time, significantly above 10 percent. And of course, also a proven capacity of integrating and integrating efficiently the acquisitions that we make. So Amundi has a proven track record in terms of acquiring and then integrating. And you know that they did it already several times in the field of wealth management. Actually, we did it already in the past three or four years ago. Some bits and pieces in Asia and in Italy. It was, of course, much smaller than the Groove-Peter Cam and the Groove-Peter Cam is a significant acquisition. It's not a game changer because in terms of size, it's around half the size of Andosuev, but it's significant. And we are having here exactly the same stance, for example, than the stance we have had with Crédia Ecole Italia. Small acquisitions, always a lifetime for digestion. And it means that before we are able to contemplate any additional transaction in the field of wealth management, first, of course, we must wait for this transaction to be completed, which is again going to take place in 2024. But also we need to go up to the end of the integration, which is going also to take some time, especially in a business where it's very important not to destabilize the teams, the relationship with the customers and so on and so forth. So definitely it's not tomorrow morning that we are going to see any additional M&A in wealth management. Great. Thank you very much. Thank you.

The next question is from Guillaume Thibautien from BNP Paribas. Please go ahead.

Thank you. Good afternoon, Jérôme. Two questions, please. The first one relates to your cost income ratio target of 58 percent. I think what you said recently was that the idea was not to try and go too much towards 50 percent, because otherwise you would feel you might under invest. Now you're getting very close to 50 percent and it doesn't look like your top line is massively over earning. So do you need to change your your target and point number one, or do you feel that you under invest for the time being and therefore the cost income ratio might slip a little bit? The second question relates to the consumer credit business. Due to the change in the agreement with Talented, I just wanted to understand how you accounted for all the loans that you acquired, because your RWA for the loans you acquired seem to be extremely low when I look at the RWA in SFS. And on that same subject, the affiliates in SFS, is that correct to assume that they're falling about 50 million now, given that for the bank as opposed to equity account for it? Sorry, it's a bit detailed, but thanks.

OK, let me start with the first question. 58 percent is a ceiling, of course. It's true that on this quarter specifically, we were close to 50 percent. And this is why we prefer to talk about the cost income ratio on the first half of the year, which is 52.3 percent. So very, very good, very efficient, but not so close to 50 percent. We are starting right now the budget process for next year. So, of course, we are going to scrutinize very precisely the projects of the different business lines in order to see what is financeable with a normal run rate in terms of revenue and what must be postponed because it would be a little bit exceeding the normal run rate investment capacity of the different businesses. You know that in terms of managing the cost base, we permanently want to decentralize the management of the cost base with very precise targets that are set by CAZA to the different subsidiaries. So we'll see exactly what new investment capacity this can create for 2024. But you know us now a little bit. You know that we don't want to let the cost base slide too fast and too far away. Of course, we're continuing to invest. And you can see, for example, that at Cassib, we've been able to allocate some additional means in order to cover the development of the business. At SFS, the Consumer Finance Business Division, actually we've increased quite significantly the level of RWAs this quarter. I think it's a region of five billion. So it's an increase that is of course linked to the fact we now consolidate a credit recall autobank, which was not the case before that. And within the consolidation of credit recall consumer finance, we have accounted this additional number of RWAs. There is a slide here that is showing the figures. Where is it? It's on page 62. And you can see that actually the number has gone up from 60 billion, 60.5 billion to 70. So there's a combination between CACF, CALF, and other elements. But specifically for CACF, it's 5.2 billion euros of additional RWAs. Thank you.

The next question is from Julia Aurora Miotto from Morgan Stanley. Please go ahead.

Yes. Hi. Good afternoon, Jerome. My first question is on net interest income. More precisely on the French retail division, but then also group level. Can we say that we have seen the trough this quarter or do you still expect it to go down and then recover for LCL and a group level? Do you expect the steel, a tailwind from rates next year because the French banks see it later than the average European bank? Or how do you see that evolving? So that's the first question on NII. Maybe it's two sub questions. And then on asset quality, I hear you that, you know, overall, the cost of risk remains low. But are you seeing anything that starts to worry you in terms of, I don't know, any specific pockets of risk, be it leverage loans or real estate or anything that you're watching more closely? Thank you.

Thank you. In terms of NII, it's an area and we're talking about the NII of French retail because clearly NII is completely different if you're talking about Italy, if you're talking about France, if you're talking about Casseiz and so on and so forth. So if we talk French retail, NII is probably close to the lowest level. But we think that the lowest level will continue for a certain number of quarters. I don't know exactly how many quarters, but I don't see a significant improvement in the NII before the second part of 24. It doesn't mean that I expect this to continue to go down significantly and even to go down in the coming quarters. But before completely recovering, it's going to take time simply because you perfectly know the mechanics. And the mechanics is that the cost of the liabilities has increased very rapidly when the cost of when the yield of assets is increasing only slowly and even more slowly because the production of new loans has significantly decreased. You know that you've seen that at LCL for home loans, the decrease is now about 40% as compared to Q2 22, which was a high point. Fair to say, but nevertheless, the lower the production, the slower the improvement of the overall yield of the asset book. So we are more or less going to be stable in terms of NII in the coming quarters. And we are going to see a recovery probably starting in the second part of 24. Lately, we have had two news. One was a good news and one was a bad news. The good news was the decision of the French government on the Livrea and other regulated savings accounts because we feared another increase. And actually, it's not taking place, which is good. The bad news is the decision of the ECB on the on the mandatory reserves, which clearly offset probably globally the good news of the Livrea. Even if it is not spread exactly evenly on the different businesses, because the Livrea good news is concentrated on LCL and the regional banks, whereas the bad news regarding the mandatory reserve is spread on all businesses that have a significant balance sheet like Casib, like CACF, like Crédia Ecole Italia and so on and so forth. So it's not going to be spread exactly the same way, but more or less in terms of magnitude at the scale of the group. It's globally close in terms of asset quality. It's clear that for the time being, we do not see a significant deterioration of the asset quality. There are probably two areas in which we are more cautious. The first one is in the consumer credit business, what we call the short circuit, contrary to the long circuit and contrary to the car financing businesses. The short circuit is probably a little bit more touchy for the time being. And this is why we started to cool down the production of new loans in this sector, in this channel. And then the second area, which is probably a little bit more touchy, is the category of very small businesses or even self-employed professionals that you find in retail banks, a little bit at LCL and more significantly within the regional banks. But all in all, this remains quite moderate as compared to the size of the portfolio, and especially in the category of large customers, i.e. the customers of Cassib, no significant element and even very low cost of risk. Again, 25 million, I think, in the second quarter of this year, considering the size of the portfolio at Cassib, it's absolutely nothing.

Thanks.

Thank

you.

The next question is from Stéphane Starmon from Autonomous Research. Please go ahead.

Good afternoon, Jerome. I wanted to explore the DeGroove deal in a little bit more detail. It looks like about half of the revenue of DeGroove is actually not private banking, but asset management and security services and a bit of investment banking. Are there any plans to transfer these activities to Amundi and Cassis and maybe Cassib? The second question on the ROI, I think if you want to generate at least 10% on the purchase price, that means at least 150 million net profit. That's about twice what DeGroove currently earns. I appreciate maybe a bit early days, but can you give us a rough sense of whether this very significant profit up list would come more from cost synergies or more from revenue benefits? And maybe the third and last part of this question, is there any appetite on your side to use this deal, buying DeGroove as a catalyst to enter Belgium with others, with other product factories that you have and then push maybe harder on consumer finance insurance and the likes? Thank you very much.

Thanks for the question. DeGroove is effectively a business in which you have a business of wealth management, traditional wealth management, a business which is perfectly correlated to this one of asset management, then you have some custody and a little bit of investment banking. In terms of custody and activities, so asset servicing activities, clearly the idea would be to integrate those activities within Caffeis. In terms of size, you know, it's absolutely certain that Caffeis would be able to manage those activities with a marginal cost. So clearly here it's a deal in which the cost synergies will be very significant. When it comes to asset management, I think the idea is not to integrate the asset management activities of DeGroove-Péter Cargouzis-Namundi because it would be, I would say, culturally and structurally too different. But you know that Indoswets wealth management has already a tiny asset management business, which is called Indoswets Gestion, and probably the synergies that we could find would be between Indoswets Gestion and DeGroove-Péter Cargouzis-Namundi asset management. When it comes to investment banking activities, it's not decided yet. It's a smaller part of the value of DeGroove-Péter Cargouzis-Namundi. In France, we have Cassibre. In France, DeGroove-Péter Cargouzis-Namundi has some teams in investment banking. We don't know yet exactly what we could do, but probably there is something to do in between. All in all, what we expect is to grow the top line of the existing DeGroove-Péter Cargouzis-Namundi by probably around 10% because we will be able to improve the product offer of DeGroove-Péter Cargouzis-Namundi -à-vis its own clients. We would be able, for example, to improve the capacity of DeGroove-Péter Cargouzis-Namundi as a private bank to provide credit services to their customers. We would be probably able to decrease the overall cost basis of DeGroove-Péter Cargouzis-Namundi by, let's say, around 15%. And this is leading clearly to the type of figures you have in mind in order to generate a return on investment, which would be above 10% and, in my opinion, significantly above 10%. So, of course, it's going to be a little bit complicated because we absolutely need to preserve the identity of DeGroove-Péter Cargouzis-Namundi, most of its value that lies within this identity. But there is absolutely no doubt that we have the capacity to very significantly generate synergies and so generate this return on investment. Maybe two last points. The first point is, do we want to expand further in Belgium? Yes, on the customer basis of DeGroove-Péter Cargouzis-Namundi, but not on developing additional activities like selling insurance directly to the Belgian public. I think it's not exactly the type of idea that we have in mind. And maybe, yes, I think it's exactly what we have in mind. Great. Thank you

very much. Very helpful. Thank you.

The next question is from Flora Benakoun from Jeffreys. Please go ahead.

Yes, thank you. Hello, hello, Jérôme. The first question I had is on the corporate center. I know it's non-strategic, but it's still a non-negligible part of earnings. And obviously, it changed a lot with IFRS 17. If I look at this quarter, it feels to me like on an adjusted basis, and that means if we take out any one-off and also the revaluation of the Banco BPM stake, could you provide us with the kind of underlying gross operating income we can expect there on a quarterly basis? I'm thinking something like 250 million negative, if that makes any sense. And then the second question is going back to CACF. You know the answer you provided earlier where you described the runoff on some of the books, but then also the good growth elsewhere. I think if I understand correctly, this is all for the auto part of the business, but then there is a large part that is especially personal loans, and I think specifically in France, in Italy. How should we think about this there? Because the underlying revenues there were declining. I think they declined again sequentially this quarter. So when do you expect the troughs? And then also on the cost of risk, you know, with the consolidation now of the auto loans, I think the cost of risk seems to be around 120, 130 bids this quarter. Is that going to be the run rate you expect in the future? Thank you.

Let me start with the corporate center. It's true that in the corporate center, you have bits and pieces that are moving. You don't have so many one-offs. If a one-off is something that is not supposed to take place quarter after quarter, but you have some elements that can have a significant volatility in the level of revenue or in the level of cost that they can represent. For example, if I take the evaluation of the VPM stake, it's going to be present every quarter. It's not going to generate probably 140 million contributions every quarter, but it's going to be present every quarter. So, and when it comes to IFRS 17 components within the corporate center, the net between the revenues and the cost is around zero. So actually, it's representing a significant reduction in the level of revenues and a significant reduction in the level of cost at the corporate center around the core. So, we have 200 million euros of revenues and costs linked to IFRS 17 on a quarterly basis, but it does not represent any significant net income component. So, all in all, we continue to stick to this idea that the corporate center should represent a global cost on a yearly basis between 700 and 800 million euros. And of course, we'll try to continue to monitor this cost based globally. I remember that, and I remind you that back five or six years ago, it was more than the double of that. And so it was really an issue in itself. When it comes to CACA, if I don't, I'm not sure I really got correctly your question. What is happening within Crédia Ecolotobanque is two things. First thing, the portfolio of loans that were granted under the framework of the agreement with Stellantis is supposed to wind down. It's winding down actually more slowly than what we had in mind. And probably actually we've continued a little bit to generate new loans for Stellantis customers a little bit longer than expected. But definitely this is a business we are progressively existing because this business has been granted now to both BNP and Santander. And then within Crédia Ecolotobanque, there is a new business that is developing quite rapidly and probably more rapidly than what we had in mind, which is the business of financing car acquisitions both to smaller car makers that don't have their own financing captive and also to independent car dealers. And then when it comes to margin issues, it's true that globally in the consumer finance business, but also in the car financing business, there has been a certain shrinkage of the net interest margin because the refinancing costs increase more rapidly than the capacity of increasing the customer rate for new loans. But it's improving now. As an example, we've increased the average cost of the new loans that we've provided to our customer by around 25 bips in the second quarter of this year. So this is progressively improving. And definitely I think that we are close also in this front from the trust.

OK, very clear. Thank you. Just one clarification also. I forgot to ask you in the questions earlier. You previously were guiding for trim impact of 4 billion on RWA. Does that still stand or was that booked in this quarter? No,

it still stands and actually it's as the horizon is getting farther and farther as we advance. So it now seems that it's going to be taken only in 24.

OK, thank you.

The next question is from Matt Clark from Mediobanca. Please go ahead.

Hi, so question on transaction banking activity. Your peers are seeing a very strong cyclical increase there. I'm just wondering if you are too and then whereabouts within your segmental reporting that gets booked and any hints or guidance you can give us on the magnitude that that's had year on year for you would be helpful. Thank you.

I'm not sure I have precisely in mind the figures regarding the transaction. You mentioned you're referring to the transaction banking activities within Cassib, is that right?

Yes, on the corporate side.

Yeah, on the corporate side. It's a business in which which is developing well because we've invested a lot in the development of cash management tools at Cassib. And so this business is growing and it's a business that is getting more profitable as rates increase, you know, but I don't have any precise number to give you in mind. Maybe the team is going to look at what kind of number and what kind of information we are able to provide and we will refer to you in the coming, I would say, hours or maybe days if you allow us.

Thanks. And within presumably it's in the financing kind of subdivision and within the commercial banking line rather than the structure, is that

right? Exactly. It's within the financing part of Cassib and it's within the commercial banking activity. That's very clear. But I don't know. I don't have any metric in mind to to guide you in the in the evolution of this precise business category. OK,

thank you.

The next question is from Anka Rangin from RBC. Please go

ahead. Thank you very much for taking my questions. The first one is just on the costs. I mean, that was a very good cost control, the 3% from Q2, Q2 and the five year over year in the first half. Can you just maybe explain a bit, I mean, it's below inflation, what we should be thinking about, how you can do so well, I guess, considering obviously also investing at the same time. And then secondly, on your flexibility to capital from securitization, is it fair to say, assume that there is no real related costs because I guess you keep the securitization. Thank you very much.

I'm starting with the second point directly because actually, no, when we securitize some loans, it's in order to free some RWA. So we sell it down to the market. And so there is a cost. But actually, it's integrated in the overall cost of each business line. And if we decide to make a securitization, for example, of consumer loans, it's going to be absorbed by the profitability of CACS. And so definitely, they have certain targets in terms of self financing activities, be it in terms of liquidity or in terms of capital usage. And if they exceed their budget, they have to finance the ways to get back into the budget. So they have to absorb the cost. And so it's not going to be one of those that is going to be accounted for, for example, in the corporate center. When it comes to the management of the cost base, again, it's very important to bear in mind that we decentralize the responsibility of managing the cost base. And this is why, for example, you can see that at LCL, they've been able to decrease quite significantly their cost base again this quarter because LCL is feeling the pressure of the shrinkage of the net interest margin. In retail banking activities in France and the reaction of the management of LCL is to try and generate some cost economies in order to absorb as much as possible this pressure on the revenues. And again, this is the best way for me to manage the cost base. If here in my office in the Mourouj, I decide that Kassib is going to invest that amount of money and that CACF has to decrease its number of staff by I don't know how many people, I will probably miss the right decision. So it's far better for me to have a permanent discussion with the different heads of businesses in order to see what they have in mind in terms of action plans to moderate their cost base evolution and simply then to trust them for the implementation of those action plans once they are approved. So it's really the way we do that. And it proves to be quite efficient. Nevertheless, I just want to maybe precise one point. I think it's in the slides, but it's important to have it in mind. We have had in France on our French staff, again, like last year, to grant a general salary increase that is going to start to apply beginning of H2. And so we will have an increase, all things being equal, of the cost base of our activities in France overall by around 10 to 12 million euros a quarter. So all things being equal, you're going to have this increase starting in Q2.

Thank you. Thank you very much.

The next question is from Pierre Chediville from CAC. Please go ahead.

Yes. Good afternoon, Jerome. Two quick questions left from my side. First one is regarding insurance P&C business. I was just wondering if you had a significant impact regarding the discounting of reserves in P&C on your combined ratio because of the new IFRS 17 and the rise in interest rates. I have seen in some other insurance companies that the new discounting of reserves in P&C could be quite interesting for insurers. My second question is regarding your business in auto loans. I was wondering if you had set any target regarding the financing of electric vehicles or maybe on production or in outstanding at a certain time. Is that something that you manage on this angle or not? Thank you very much.

Thank you, Pierre. In insurance, it's clear that with IFRS 17, the P&C activity is going to be more volatile, especially because we will not be able, as we could do that in the past, to build some provisions in order to be able to withstand without too important a cost some major events like climate events. And so in Q2-22, restated under IFRS 17, we have a very bad result of the P&C activities because Q2-22 is earmarked with a very severe climate event in France. So IFRS 17 is a little bit new. We are going to learn progressively. We hope we are going to be able to do what we like to do, which is to build different categories of cushion and buffers in order to help us accommodate some punctual events. But for the time being, what we must acknowledge is that P&C activities are going to be more volatile. In terms of financing electric vehicles. So,

sorry, my question was more specific on the discounting impact, which is new. I was just talking about the... Jokers, yes. I don't have

the answer in mind. And I will ask Cécile. She knows quite well the insurance activities considering her past, and she will provide you the precise answer. When it comes to electric cars, we have presented in December last year some strategies in order to decrease the CO2 emissions in different sectors of activity. One applies to the car sector. And in this sector, what we want to do between 2020 and 2030 is to reduce by half, around half, the amount of CO2 emissions per kilometer for the cars that we finance. So it means that included, embedded in this objective, of course, there is an objective of growing the proportion of electric cars that we finance. But it's not directly an objective in terms of numbers of cars that we want to finance. It's through this global objective to divide by around two the CO2 emissions per kilometer for the car that we finance.

And this target has not changed with the changing in parameter? No. Okay, thank you very much.

The next question is from Amit Goyal from Barclays. Please go ahead.

Hi, thank you. So one follow-up and then another question. So just on the costs, so I appreciate there were a couple of questions already, but I just wanted to understand in terms of that cost-income ratio and from what you see today, are you expecting it to trend up back towards that kind of 58% level or do you think that, you know, we could see it staying at around this level going forwards? Second question, just on the group Peter Cam transaction, I mean, obviously there are a couple of different, you know, interested parties. I'm just curious from your perspective what it is that enabled you to get the deal across the line. And maybe just a small follow-up on that or clarification, but the 30 basis points of capital, is that for, you know, for if you get to 80% or is that at the kind of .5% level of ownership? Thank you.

Okay, let me start with the second question. So the 30 BIPs is for the full acquisition of the group because actually we are providing some liquidity puts actually for the remaining shareholders. So we have, of course, to provision all the credential costs of this possible operation. So definitely 30 BIPs is for the 100% of the group. It's very difficult for me to explain why and what was our edge in order to be the winner of this process. It's again very difficult. I don't know exactly who was our competitor and what was the, which were the elements that pushed the decision in our direction. So it's difficult for me to comment. Cost income ratio. Of course, we are not going to frame the 2024 budget by saying, okay, everybody can go back to 58% of cost income. But we are not going either to ask everybody to keep the level where it is now. So it's definitely, and I appreciate that it's maybe not exactly the answer you were expecting, but definitely we don't want to go above 58. And we are not going to go above 58. And we are not going to set as a target to get back close to 58. But there is no ratchet, I would say, saying that everybody has to permanently remain at the best level ever reached. So it's going to be again a matter of appreciation. And it's going to be one of the key issues of the budget process. Thank you.

Thank you.

The next question is from Fred Kumar from Deutsche Bank. Please go ahead.

Hello. Good afternoon, Jerome. Thank you for taking my questions and congratulations on a very good result. So I just have one question pending still. On the EVA stress test results, Credit Agricool Group did see a high impact of around 730 basis points on the CET1 under the adverse scenario. So I do know that the stress test results are only conducted at the level of the group. But given it could also be relevant at the level of CASA, if we were to kind of use the same assumptions, what sort of impacts are we looking at for the listed entity? Any color, they would be useful. Thank

you. No, we are not going to provide any detail on what would be the impact on the listed entity because it was not the perimeter that was tested. But maybe one clue that I can give you is the fact that actually this exercise was not really framed for French banks because there was a hypothesis within the methodology that was completely contradictory with the way we do banking in France. This was the hypothesis that we should feed into the cost of our side deposits half of the increase in short-term rates, which is absolutely not going to take place whatsoever. And the clue is the fact that most of our side deposits sit within the regional banks. And this has had a very significant impact on the depletion of the group.

Understood. Thank you for that. The next

question is from Gioff Davis from SG. Please go ahead.

Hi, good afternoon. It's Geoff Dawes here from Stoke-Trent. Thank you for your time. A lot of useful stuff there, so thank you. One quick question on the CIB and capital markets in particular operations, obviously quite a good quarter revenue wise. You mentioned an increase in market RWAs over the period. First of all, just whether that was a kind of deliberate thing, whether some of the increase in revenues is down to a change in the upside for risk. And then on a longer term basis, obviously there's been a very good post-COVID level of revenues coming through in that division. Market conditions a big part of that. But has there been any geographical change in the breakdown of your revenues over that period as well? Or is it just more activity with the same sector?

Thank you for the question. Globally we're not changing anything in the strategy at CASIB, neither from a geographic point of view nor from a risk appetite point of view. So what is happening in this business division is two things. The first thing is that definitely an environment where rates are positive is better for fixed income activities. That's for sure. There is more business and more, I would say, generously priced business when rates are positive. And this is benefiting to all CIBs. And the second point is that CASIB is progressively improving its rankings and its positioning towards its different categories of customers. And so it is benefiting from a better share of wallet with each of its customers. When it comes to the RWA evolution on this specific quarter, of course, nothing to do with a potential increase in the risk appetite at CASIB. There is no change in the scope of businesses undertaken within the capital market activities, but simply some technical issues. You know, that's the RWA consumption or capital consumption in the capital market activities is building up. So it's a building block process in which you have some netting benefits. And it happens that this quarter, the netting is not so positive, not so favorable. So this is why the RWA consumption has increased. But there is, in my understanding, nothing structural on this point.

OK, so regulatory and technical. That's very helpful. Thank you.

The final question is from Chris Hallam from Goldman Sachs. Please go ahead.

Yeah, good afternoon, everyone. And good afternoon, Jerome. So just one question from me on the sustainability of performance. So if we look at the underlying performance of 1.85 billion in the quarter or 14.7 percent returns in the first half, then clearly that's a long way ahead of the targets and ahead of market expectations. So I understand that you don't want to change the medium term target every time you report. But perhaps you could just remind us of where we should expect to see some kind of normalization in performance over the coming quarters or years, whether it's around things like seasonality, rising deposit betas, peak NII, increasing investment, et cetera, et cetera. And sort of how much more confident heading into the summer break, how much more confident do you feel about that medium term returns outlook?

It's a fair question, but I will reiterate that I don't want, as you said, to update every quarter our medium term target. But bear in mind that a significant component of the profitability at CASA comes from CASIB. And at CASIB, within CIB activities, the first half of the year always represents more than half of the year in terms of revenues, because you know that in the second half you have the summer in which the level of activity is generally lower. And you have also the second part of December where generally there is absolutely no business. So it's possible that in this front we will have a slowdown of the activity, not compared to last year, but compared to the first half of this year. Then for the other businesses, I see no specific seasonality. So we've been quite clear on the different elements that can be considered as one-off in this quarter. And I think that the run rate of each business, of course, has to be assessed by each of you considering their own analysis. But I think the most important business in which there is some seasonality is the CIB. Then when it comes to insurance, we've said that IFRS 17 is modifying a little bit the pace at which we recognize the revenues and thus the profit. So two elements are going to be important going forward for the insurance activities. The evolution of capital markets and also the evolution of sinistrality in the P&C activities. And this is something you'll have to monitor in order to assess a little bit our capacity to repeat the performances of the quarter. Maybe one last point I could mention, but this is a point that goes into both directions. In terms of impact of the increase in rates on our different businesses, some businesses are negatively impacted. It's the case of LCL. Some businesses are positively impacted. It's the case, for example, of Credierecon Italia or Castellis. And we are feeling that we are reaching a more stabilized level of rates. So definitely we are not going to see the repetition of the strong evolutions, be they negative or positive, in the coming quarters in those businesses.

Okay, thanks. Very helpful. Okay.

Well, thanks everybody. It was a pleasure to comment those results again. Thanks to the team around me and wish you a good vacation. Bye bye.

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