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Credit Agricole Sa
11/6/2024
Good morning, this is the conference operator. Welcome and thank you for joining the Credit Agri-Call third quarter and first nine months of 2024 results presentation. 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. At this time, I would like to turn the conference over to Mr. Jérôme Gluvet, Deputy Chief Executive Officer. Please go ahead, sir.
Thank you very much. Good morning, everyone, and I'm happy to share with you the results that we are publishing this morning. Again, we are publishing very good results from the third quarter of 2024, and to put it in a nutshell, they are very close to the results we've posted for the second quarter of the same year. The net profit at Credit Agri-Call SA for the first nine months of the year stands at 5.4 billion euros, and it's 1.7 billion euros for the third quarter only. It's apparently down around 4.7 percent, Q3 on Q3, but we stated from a reversal of home purchase savings plan provisions that we had booked and commented last year, actually the net profit of Credit Agri-Call SA this quarter is up 8.2 percent. In addition to that, we can mention the fact that for the first nine months of the year, we continue to have a very, very good cost-income ratio, 54.4 percent, a return on tangible equity, which continues to be comfortably above the target of 12 percent at 14.5, and the last point on this first page, we have a CET1 ratio, which is up 10 bips at 11.7 percent. On the following page, page five, you have the main figures both for the group and for Credit Agri-Call SA. Maybe just a few comments simply on the first nine months of the year for the group. Net profit is stable for the first nine months of the year, but actually again, we stated from this specific reversal of provision that we had booked last year, the net profit is up 4 percent, around 4 percent for the group on the first nine months of the year. And when it comes to Credit Agri-Call SA, again, we stated from the same element, the net profit on the first nine months would have been up 12.2 percent. Maybe just two additional elements on this page, the cost of risk, and we will comment it a little bit more in detail later in the presentation, but it's more or less stable at a moderate level, both for the group and for Credit Agri-Call SA. And then last point, the CET1 ratio for the group is also up 10 bips on the quarter at 17.4 percent. On page six, some elements regarding the activity of the quarter. To again summarize very shortly what happened in the quarter, we can say that we continue to demonstrate the efficiency of our model. We are, the development of the customer basis of all the regional banks and all the retail banks of the group is fueling and continues to fuel the growth of the business lines, and the growth and the development of the business line is also fueling the attractivity of the retail banks of the group, thus enhancing further the customer capture. And this quarter, again, we've managed to attract close to 500,000 new customers in the different retail banks of the group in Europe, with a net increase of the customer base by more than 100,000 customers. The development of the retail related activities was quite solid on the quarter, and maybe we can mention the fact that home loans start to rebound in France, with a significant increase both for the regional banks and for LCL in Q3 as compared to Q2. And when it comes to the large customer activities, CID, asset management, and also insurance, it's been a very strong quarter of activity in the third quarter of this year. And amongst the different elements I can name, we can mention the fact that Amundi is reaching again a record level of assets under management. There's been also a record level of revenues at Kaseeb, and the assets administered by Kaseis continues to be up this quarter. If I dig a little bit on the revenues on page 8, let me start with the left-hand side bar chart of the page. The underlying revenues are up 7% on the quarter, plus 425 million euros. And if we analyze a little bit the way it's been performed by the different business lines, we can mention that on the asset gathering activities, it's sharply up, plus 214 million euros. Of course, it benefits from the integration of the group Peter Cam within Andos Wells, but nevertheless, you've seen that Amundi is posting a strong increase in its revenues. You've seen the publication of Amundi last week. It's only the insurance activities, and maybe we will answer questions on this point, that have more or less stable revenues on this quarter, despite the fact that Crédia Récor L'Assurance is posting a sharp increase in its bottom line, for some technical reasons we can detail. On the large customers' activities, both Casib and Casseiz are posting a sharp increase in their revenues. No scope effect this quarter, and so the increase of 166 million euros in the top line is only organic. In the Specialized Financial Services division, it's more or less stable for the quarter. It's linked to the fact that within Crédia Récor personal finance and mobility, we continue to lag a little bit in terms of margin after the sharp increase in rates back last year and also end of 2022. You know that it's been a little bit long before we were able to pass to the customers this increase in refinancing rates. So the margin for the new loans continue to improve, but it's not completely the case for the margin on globally the whole outstanding. In retail banking activities, apparently a small decrease in the level of revenues, minus 36 million euros, but actually restated from the reversal of home purchase savings plan provision at LCL of 52 million euros. It's globally slightly up for the division, which is a combination of revenues up at LCL, revenues up at the international retail banking entities outside Italia, and a slight decrease within Crédia Récor Italia in connection with the decrease in market rates. And then lastly, the corporate center, apparently a sharp decrease in the level of revenues, minus 187 million euros. But actually also here we have this base effect in connection with the home purchase savings plan provision reversal, which was 230 million euros back last year. So it means that we stated from this element, revenues at the corporate center are significantly up on the right hand side of this page. You can see that we continue to post sharp increase in revenues Q3 after Q3. And over the course of the last seven years, it's an increase by around 40 percent that we've been able to post. On the following page, a little zoom on the cost line. If we look at the evolution of the underlying cost line on the bar chart on the left hand side of the page, you see a significant increase, plus 8.2 percent. But what you see on the analysis provided on the right hand side of the page is that you have to deduct three significant elements from this increase in order to assess the recurring evolution of the cost line. The first element is clearly the scope effect in connection with the integration of De Groupe Pétter Cam. It's an additional cost base of 112 million euros that is sitting within in Andosuez this quarter. The second element is that both at Andosuez and also at Casseiz, we have some integration costs that are specific to this period of integration and that are not going to to stand forever within our cost base around 30 million euros. And then the last point is that last year we had also a one off in the cost line, a positive one off in the cost line, which was a reversal of bank levy in the UK for 30 million euros. So outside these three elements, the evolution of the recurring cost base is only 141 million euros over the quarter. It's an increase of 4.1 percent. And interestingly, it's a significant deceleration as compared to the same recurring increase that we've posted in the second quarter of this year, which was at 5.7 percent. On page 10, some elements on the cost of risk for Crédia Ecole SA. The level, the overall level of the cost of risk is very stable, both compared to Q3 23 and also to Q2 24, even slightly down as compared to Q2 24. This is, of course, the combination of different evolutions and different levels of cost of risk in the different business lines to really summarize. What we can say is that at Casseiz, the cost of risk continues to be stable at a very, very low level, around 15 million euros of net cost of risk at Casseiz. The cost of risk is also stable at a higher level, of course, within the specialized financial services division, especially in the consumer credit business line. But in terms of BIPs compared to the outstanding, it continues to slightly decrease. The cost of risk is a little bit up at LCL, both in absolute numbers and also in terms of BIPs as compared to the outstandings. And you would see the same type of evolution within the regional banks. So it means that in retail banking activities in France, especially for self-employed professionals and SMEs, we are continuing to see a slight increase in the cost of risk with an overall level, which continues to be, again, moderate compared to what we could have had back several years ago. And then in the international retail banking activities, the cost of risk is down quite significantly this quarter again. It's the case, very much the case in Italy, and it's also the case in the other international retail banking entities with, amongst other elements, a reversal of provision at Crédit Agricole Ukraine. In terms of NPL ratios, we continue to have a stable and low NPL ratio at Gaza, .5% and even more at group level, 2.2%. Coverage ratios continue to be very high, above 70% at Gaza and above 80% at group level. Overall, and you will see that on page 11, we are posting again very good results on this quarter. Net profit is up .9% on an underlying basis. This is what you can see on the left-hand side of the page with a net profit up in most business lines, especially we stated from the home purchase saving 10 provision reversal of last year. It's the case for the asset gathering division quite significantly. It's also the case for the large customer division. Net profit is more or less stable in the specialized financial services division and retail banking activities. If you restate from the home purchase saving plan provision reversal plus a specific element at Crédit Agricole Ukraine, which is the fact that the corporate tax rate has been increased in this country, and we are one of this quarter complementing the corporate tax provision since the beginning of the year for an amount of 40 million euros. This explains most of the apparent decrease of the net profit of the retail banking division. So all in all, significant increase in the net profit, underlying net profit and spread amongst most of the business lines. On the right-hand side of the page, what you can see is that excluding the home purchase saving plan provision reversal from 2023, we are posting a return, a gross operating income, which is up a little bit more than 100 million euros. And again, this net profit up 126 million euros plus 8.2 percent, again, excluding this element. So all in all, good level of profitability, and we continue to grow this level of profitability. On page 12, some elements regarding the solvency, starting with Gaza. So as I told you, the solvency ratio, CQM ratio is up 10 bips this quarter. Actually, it's a little bit more than 10 bips, close to 15 bips. But the rounding effect is leading to this 10 bips indication. Retained result is high, 19 bips of retained results, solvency effect. Despite an additional reserve for the distribution of dividend of 25 cents this quarter. So we have now 83 cents of dividend accrued in our books at the end of the third quarter. The organic growth of the business line generate consumption of solvency of 14 bips. But amongst that, I have to mention that there is an increase of five bips in connection to the increase in the carrying value of the insurance activities, which did not upstream any dividend or dividend elements this quarter. So, of course, you know that every time the insurance activities are upstreaming a dividend, it's reducing the carrying value and it's generating a significant reduction in the RWA consumption. And then we have this quarter some positive elements regarding OCI and other methodological elements. So this is leading to this 11.7 percent CET1 ratio at Gaza level plus 3.1 percentage points above the regulatory requirements. And at group level, we have on the following page a CET1 ratio, which stands at 17.4 percent. Again, up 10 bips and we have more or less the same elements explaining this improvement with a high level of retained results. A quite high level of organic growth of the RWA consumption by the business line. Also, this element regarding the insurance activities plus the fact that both at the level of the regional banks and LCL, we have an increase in the corporate segment of the RWA consumption in connection with some down ratings of some counterparts, which is, of course, perfectly correlated with what I said about the cost of risk. The other solvent ratios, be it the leverage ratio, TILAC or MREL are comfortably also above the requirements. On the following page, page 14, we have some elements regarding the liquidity position of the group. The liquidity reserves continue to be very high and there is a non-significant reduction of 12 billion euros, but the level of 466 million euros of liquidity reserves is definitely significantly above our target of steering of this liquidity position. And the different ratios that we publish, both LCR and NSFR at both levels of CASA and the group continues to be very significantly above our targets. We still have a tiny 700 million euros of TLTRO to repay, but it's absolutely non-significant. And when it comes to customer deposits on the right hand side of this page, the same comment that I did on the last quarter can be also made, which is that we are seeing a stabilization of the overall level of customer deposits and also, which is even better for the average cost of our customer liabilities, we are seeing a stabilization also of the breakdown of the different customer deposits between the different categories. On the following page, page 15, you have the more detailed income statement for Créi-École SA. I think I will not comment this detailed P&L in the initial presentation, but of course, I'm happy to answer questions if any. And maybe before concluding this introduction, some elements regarding our continuous support of the energy transition with new climate commitments that have been announced by Créi-École SA, with an interesting element, which we comment today, which is the fact that we've entered into an agreement with the Caisse des Depots in France. You know that we have to centralize the Caisse des Depots, a significant part of the regulatory savings accounts that we collect to the Caisse des Depots. And the Caisse des Depots has agreed to transfer back to us some liquidity collected on our regulated savings accounts with the condition, of course, that we finance green loans, green projects with these amounts. So we've entered this agreement and the Caisse des Depots is committed to upstream to us a little bit more than five billion euros of liquidity in this scheme in the course of this year and next year. And then we provide also an update on the different key PIs that we follow in terms of the increase of the financing that we provide to the energy transition. So I will conclude this initial presentation simply by reiterating the fact that we confirm, helped by these good results of the third quarter of this year, that we are going to reach as soon as the end of this year, all the financial targets that we were initially pursuing for 2025. So amongst other elements, the target of being above six billion euros of net profit in 2024, as soon as 2024. Thank you again. And I think we can now go to your questions.
Thank you, sir. This is a conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. The first question comes from Julia Aurora Miotto of Morgan Stanley.
Yes. Hi. Good morning, Jerome. Thank you for taking my questions. My first question goes to the French budget, the increase in taxes. I think Crédit Agricole makes about 40% of its income in France. What sort of impact do you expect? So is this correct? And what sort of impact do you expect coming from the increased corporate tax? That's the first question. And then secondly, more to the business. So insurance insurance was a bit volatile this quarter due to crop impacts, crop insurance impacts, if I understand correctly, on a revenue basis. So how much can we extrapolate from that? I mean, given the climate change, maybe that's something that continues. And on a profit before tax, maybe basis, does your usual guidance of, you know, mid single digit growth stand or how do you see the earnings evolving in insurance? Thank you very much.
Thank you, Julia. Two important questions indeed. First question regarding this additional corporate tax elements that the French government is targeting both for 24 and 25, if we understand correctly, with a rate that would be maximum in 24 and then a reduction in 25. So it's a little bit difficult to answer precisely your question about the impact. First, because we do know exactly the rules. Second, because we do know exactly what is going to be our taxable result basis for the full year of 2024. And especially in the context where actually we have different French taxpayers in the group, because some subsidiaries of Crédia Ecole SA are not integrated in our tax group, French tax group, because we do not own more than I think the threshold is 90% of them. It's the case for Amundi on the one hand, and I think that Amundi has provided some guidance last week about the possible impact for them. And it's also the case for Cassis, which has a significant tax basis in France, but it's not part of the tax group. Because we own only 70% of Cassis. So when it comes to the tax group, which gathers together, CASA, the 100% subsidiaries, plus also the regional banks, which are outside the listed vehicle, but they are in the same tax group. Just as a reminder, back in 2017, where the same type of mechanism was put in place, I think the total extra charge that we had to pay, but it was split between the regional banks and Crédia Ecole SA, was around 300 million euros. So I'm not saying that this is going to be the same amount, because many things have changed. But just for you to have an idea, tax group of Crédia Ecole in France has paid around 300 million euros back in 2017. And it was split between the regional banks and Crédia Ecole SA and some of its subsidiaries. So that's the best answer I can provide you on this first topic. When it comes to insurance, again, we know that IFRS 17 did not help a lot in terms of providing clarity and a clear relationship between the economic evolution of the business and the different numbers, especially if we look only at the top line. When you look at the bottom line of Crédia Ecole SA, what you can see is that on the quarter, we are posting an increase of the net profit, which is plus 16%. And for the first nine months of the year, it's plus 11%. So absolutely no worry from a net profit point of view. But then, of course, you have ups and downs in the different lines of the P&L. And we have had, I understand, questions this morning. And the teams are ready to give as much clarity as possible. On the top line, revenue line, some negative impacts. The first one is that indeed, the P&C activities globally in connection with crop insurance posted a decrease in their contribution to the revenues this quarter because of some negative events and claims this quarter in excess of what we had back in the beginning. So that's one point and this can be volatile. But on this element, I would say that, of course, we think that considering the climate change, the level of claims can increase going forward. But at the same time, of course, year after year, we are going to align the pricing in connection with the level of claims that we will have to manage each year. So definitely, this is going to lead to two types of consequences, an increase in the level of premium and possibly also an increase in the level of claims. But normally, economically, this shouldn't change too much the profitability of the business over time. Then we've had a second element, which is very technical, which doesn't have anything to do with the evolution of the business. In its financial structure, Crédit École Assurance is progressively switching from 81 debt that is issued on the market to tier 2 debt. And it happens that the 81 coupons are accounted for on the minority interest line, whereas the tier 2 coupons are accounted for in the, are deducted actually from the revenue line. So this is a progressive shift. You will see over time a decrease in the cost of the minority interest. And you will see at the same, with the same magnitude, a slight impact on the revenue line. In addition to that, every time there is a call on an 81, there might be some lump sum that has to be paid in the minority interest line. And so this is why this quarter, we have an impact on the revenue line without having a benefit on the minority interest line. So we are not talking about massive amounts, but nevertheless, over time, this can represent some, let's say, 15 million euros as a run rate on both lines. Then the last point, which is that we are progressively tuning the level of CSM allocation that we fuel into the P&L. And we've been reducing a little bit the level of CSM allocation. For the full year 2023, I think the CSM allocation rate was around 8.5%. And for the first nine months of 2024, we are a little bit below 8. So this is not massive. This is rather technical, I would say. This is actually, it has a consequence, which is another significant increase in the level of CSM that we continue to keep to fuel the future profits and revenues. But this is also generating a slight impact on the top line. And then the last point, you know that within the management of the assets of Crédia Récue L'Assurance, from time to time, we are able to materialize some capital gains, which may be impacted by a lower corporate tax rate than the average corporate tax rate. So this is why we have less corporate tax in the P&L of Crédia Récue L'Assurance this quarter, but also less revenues, both being connected. So this is the explanation why the top line is slightly down, but we are talking about minus .2% over the quarter. And we are still up .5% over the first nine months. And at the end of the day, what is important is, of course, the contribution of the business to the net profit of Crédia Récue L'Assurance. And this continues to be up. And again, the guidance that we've provided, as long as the business continues to be positive, is clearly to go alongside with the evolution of the business.
Thank you very much. Just a clarification on the first tax, the 300 million that you quoted for 2017. We can take that as the worst-case scenario, and it will be lower because that was split with the Castre Regional, I guess. Yeah,
and again, it's going to be split with the Castre Regional because the Castre Regional are the top-fifths, and so they are contributing to this surcharge in tax.
Okay, clear. Thank you very much.
The next question, sir, is from Gayyum Tbejan of BNP Paribas.
Yes, thank you for taking the question. Number one is on the insurance again. So you used to guide us for around 5% net profit growth. So should we, like in the past, forget the revenue volatility and just put 5% profit growth? The second element back to the tax, I can understand that in 2017 you paid 300 million more, but your PBT this year is going to be like 50% or 60%. I'm not asking you to confirm that 50% or 60%, but the order of magnitude versus 2017. So should we actually grow by a similar amount the tax that you're going to pay? And then a final clarification, if you don't mind. The RWA of LCL seems to have increased by 1.6 billion this quarter on hardly any loan growth and loan growth was mostly on mortgages. Is there any change in model? And if so, is it going to be material going forward or is it just a one-off adjustment? Thank you.
RWA at LCL, the explanation is mostly the fact that part of their corporate exposure, and when I say corporate it includes of course SMEs, has been downgraded in our internal model. So this is generating a surcharge in RWA. So this is normal volatility and when the economic situation is getting a little worse, it's absolutely normal that we see some increase in the level of RWA without any evolution in the level of outstanding simply because of this downgrading. So we do not expect the same amount of increase every quarter, but clearly this is in connection with what we see in terms of overall soundness of the of this segment of customers. And you have the same evolution within the regional banks, actually, with a more important number because of the size of the portfolio of the regional banks. When it comes to the tax, the surcharge in the corporate tax in France, it's true that the overall profit of the group has significantly increased as compared to 2017. But nevertheless, I can guide you to the fact that a significant proportion of this increase was probably not linked to French based activities. And then when it comes to insurance, again, my guidance is that the profit, the net profit is going to grow alongside with the overall volume of business. So five percent is probably a decent guidance on the medium to long term. It can be higher on the certain in a specific in a more specific period. And actually, what you've seen this year is that we are significantly above this five percent. And again, this year we've generated a higher pace of increase of the business with significant inflows, net inflows in savings and retirement businesses and PNC activities that were significantly up. Also in terms of new contracts, new policies and volume of premium.
Thank you.
Thank you.
The next question is from Tariq El-Majrad of Bank of America.
Hi, morning. Good morning, Jerome. Just two questions for me, please. I'll take a small step back and look at your profitability in nine months, close to 15 percent or 14 and a half. I don't expect any major headwind before actually quite the opposite with some businesses turning the corner and growing faster. So why why not actually looking more constructive in terms of of outlook? I mean, we're not asking for a new plan, but actually, you know, you brought forward the full year above six billion to a net profit. Three eighty one from twenty five to twenty four. That was last quarter. But I mean, what prevents you at this stage to to be to be more constructive on this? And then the second question is on the MNA. Quite eventful today in all aspects, but on the conversation part, are you now more disposed to to to contemplate some larger opportunities in Italy? I think it's fair to say that the golden power rules in Italy are difficult to be enforced, given how government was vocal on supporting a deal in Germany for for your credit. Is that an opportunity for you? You will contemplate now Creval is is I think digested and you never been hiding the ambitions in Italy. So any any comments in there would be would be very useful. Thank you.
Thank you, Tariq. When it comes to what we can say regarding the level of profitability that we target for the full year of twenty twenty four, we are not going to change the target. We are close to the middle of November. What would be the point in saying that instead of six billion plus, we are targeting, I don't know, whatever number. So what we say that we are going to be above six billion. What we can say is that this is going to be despite this corporate tax charge in the middle of November. In France, which is another element that we hadn't in mind probably a back three months ago. But I think it's there's no point in trying to be more precise. And again, for many reasons, we will need somewhere in twenty twenty five to to to to elaborate new medium term targets. And this is this is going to be the time when we are going to to set a new target and provide new guidance. And I think it's there's no point in trying to accelerate the calendar when it comes to M&A. You know, we never comment specific situations, so I'm not going to give you comments on what type of initiative we can or cannot take in different countries, in different geographies, in different entities. It's clear that Italy is a very important market for us. It's clear that in Italy we have a set up with which is very, very comprehensive, very significant. We have many options. So we are permanently assessing the situation and trying to see what is what is relevant for us. But clearly, I'm not going to say in advance what I want to do. I prefer to comment what I did.
OK, thank you. Thank you.
The next question is from Florida of Barclays.
Yes, thank you. Good morning, Jerome. The first question is on LCL, where you know you had a small gain in private equity in Q2 in the NIA. And I think this quarter you seem to mention in the slide back the positive extraordinary effect from the evaluation of an equity investment. So I was just wondering if you could quantify so we have a better understanding of the move sequentially in your underlying NIA at LCL. And the second question is coming back to insurance. I just want to understand why you're rethinking the financial debt structure. What should we read into this, you know, between the H1 and the tier two? And maybe can you give us a few numbers, the size, you know, of the tier one versus tier two? And so we can assess, you know, because you said it's a progressive shift. So it looks like there's more to come so we can better approach, you know, where your revenues could come in in the next quarter. Thank you.
LCL, it's clear that because this is the way we have to account for these elements within the NIA, we have mostly revenues coming from the management of the balance sheet and from time to time, some tiny elements that introduce a little noise, I would say, in the level of NIA. So NIA is up around 2 percent Q3 over Q3, excluding the home purchase saving plan reversal of last year. But I would say that it's slightly down if we restate also from this revaluation of equity investments. I'm not saying that we will never have any other positive revaluation of different equity investments or bits and pieces here and there. But if I really look only at what the balance sheet generated, it was slightly down Q3 over Q3 this year. The good element, the positive elements that we see in the present situation is that we continue to see a progressive repricing of the outstandings on the loan book because we continue to book new loans at a rate which is now in the region of 3 percent, I would say. And this replaces amortizing loans that were yielding much, much lower. And so the second good news is that there is and there seems to be a continuation of the acceleration in the production of new home loans in France, both within the regional banks and at LCL. So this is a potential of acceleration of the improvement of the yield of the asset book. And at the same time, on the liability part of the balance sheet, again, I want to insist on the fact that there is a stabilization of the breakdown of the different categories of customer liabilities. There is also a potential of reduction of the cost of certain categories of liabilities for term deposits. Clearly, the pricing is reduced, is shrinking a little bit alongside with the level of rates on the market. And when it comes to regulated savings accounts, we do not know what will be the decision regarding Livre A, but there is a decision to be made beginning of next year. And mechanically, the Livre A level should be fixed probably at 2.5 percent instead of 3 percent. So this is clearly also a potential of improvement going forward. When it comes to the structure of the balance sheet of the insurance activities, what they did is that they repaid an old 81 back in the fourth quarter of 23 for 500 million euros. They've also bought back another 81 in the beginning of September this year for 750 million euros. We still have around 500 million euros of old 81 in the balance sheet. So we are not going to say when and how we are going to operate on the remaining part of the 81, but we've done the biggest part of it as of today.
The next question is from Kiri Vijayarajah of HSBC.
Yes, Kiri. Firstly, can I just come back to your optimism on the French home loan demand? I mean, how much of that is reliant on further declines in 10-year, 20-year swap rates going into next year? Or is it more a case that the pipeline that you can see already feels pretty strong and that's going to come through regardless of where interest rates move in the short term? And I ask because rate expectations have been pretty volatile recently. So just on the quality of the mortgage demand and the pipeline there. And then the second question actually is still on the volume side of things, more on your fleet leasing business. And you've signed more partnership deals, have done bolt-on acquisitions. But my question is more on the next two to three years. What's the steady pace of asset growth and volume growth in mobility fleet leasing? And also it feels like a lot of the consolidation in that little subsector has now happened already. So when it comes to just sort of natural organic growth and if you find it harder to do bolt-on deals there, what's the kind of steady state growth that you like that we should pencil in in the fleet mobility side of the business? Thank you.
OK, on the French retail, I don't know if the word optimism is really the right word, but I'm more positive, more constructive because simply I see the figures. And again, I mentioned that Q3 over Q2, there's been an increase in the production of new home loans of 73 percent at LCL and I think 20 percent at the level of the regional banks. Q3 over Q3, it was still down for the regional banks, but slightly up for LCL. So it means that we really seem to have gone over the low point of the production of loans on the market. And if I look at more, I would say granular data in September only, it seems that both for the regional banks and for LCL, we are above the level of production that we had back in September 23. So all these elements are fueling the feeling that the low point is behind us. And in addition to that, if I analyze the way the market is behaving, rates have decreased. That's very clear. So that's better for the borrower. There is some stabilization of the price of homes. And the last point is that even if it took some time for them to acknowledge it, potential borrowers have benefited over the last two and a half years of a certain number of nominal salary increases that is also fueling their purchasing capacity. So all in all, this explains why I think some elements are here for the home loan market to pick up. So we are going to continue to monitor the situation closely, but we are more positive, even if probably optimism is a little bit strong in terms of wording the situation. In the car leasing business, the situation of the car market, especially in Europe, is not very clear as of today. There's some, I would say, industrial reasons and there's some also, I would say, regulatory reasons because a big part of the potential car buyers are a little bit puzzled by all the uncertainties regarding what is the right technology, what is the pace at which I have to change my car and so on and so forth. So it's clear that for the time being, the prospects on the market are not very, very bullish. So up to now, we've been able to weather this difficult market thanks to the development of the new agreements that we have signed with Stellantis. And actually, we are developing the portfolio because we started almost at zero back one and a half years ago and we continue to build up the portfolio. So this is going to fuel our growth going forward, but in a market that is not going to be very clear and very bullish rapidly.
OK, that's really clear. Thank you.
The next question is from Joseph Dickerson of Jeffreys.
Hi, thank you for taking my question. Just one quick thing on consumer finance. I guess I was a little surprised at the revenue yield there in the quarter. I would have thought that business is relatively liability sensitive. And you've talked before about front book margins being better than back book. Is there any change to those dynamics in consumer finance? Many thanks.
Thank you. Well, in consumer finance, actually, the shock was probably back one and a half or two years ago when there has been a very significant increase in the refinancing cost of the business, because this business is mostly financed on the market. And it was not possible for us, but also for our competitors to pass to the customers the increasing rates as rapidly as we felt it in our refinancing. So we've accepted actually to significantly deteriorate the margin at the production of new loans. So it's been now improving regularly. The margin for the production of new loans has been stable Q3 over Q2, but still up 86 bps Q3 over Q3, which is far better. For the time being, we are not complete. We've not completely recovered the level of margin on the outstanding that we had back two or two and a half years ago. But we still expect this to come over the course of the coming quarters. So it's definitely a business in which when rates, market rates increase, it's not really possible, especially in countries like France, where you have a rate regulation to pass it immediately to the customer. Of course, when rates decrease on the market, we try as much as possible, depending on the competition, to keep this decrease in the cost of funding and to avoid passing it immediately to the customer.
Can I ask one more question on insurance? Yeah. So just on the crop claims, I mean, I guess if I look at the in the in the current quarter, for instance, there's been some flooding in various parts of the country, notably the south. I mean, is this the type of thing that we would expect to recur around these weather events? Or do you feel that through IFRS 17, maybe you've captured even the current weather situation in the present quarter?
It's clear that the flood and the other weather events that we've had in France since the beginning of October, so in the course of the fourth quarter, has to be accounted for in the fourth quarter. So up to now, considering the type of events we've had, considering the fact that they were very concentrated in some very specific regions and considering taking also into account the reinsurance policies that we have, I do not foresee a massive impact on the fourth quarter numbers. But definitely, especially with IFRS 17, it was not so much the case before that under IFRS 4, where we could book some provisions to more or less smoothen the evolution of the cost of risk. But under IFRS 17 has to be accounted for when it arrives. So it means that we've had some weather events in the fourth quarter that will be accounted for in the fourth quarter. But again, what happened in France has nothing to do with what happened in Spain, for example.
Exactly. OK. All right. Thank you.
The next question is from Matthew Clark of Mediobanca.
Good morning. So a few questions, please. Firstly, on the capital markets and investment banking division, there doesn't seem to be a whole lot of operating leverage coming through there. Can you give some commentary on why is this what you think is the appropriate level of operating leverage, but why are we not seeing costs more contained relative to revenues there? Secondly, in the consumer finance business, thanks for the commentary on the financing cost. But in terms of just the sequential revenue trends, you were up quite strongly in the second quarter and then gave most of it back again in the third quarter. Could you just comment on what's driving that quarter to quarter volatility? Was there some kind of lumpy item last quarter perhaps? And then third question is on the world line stakes. If you could just remind us how that's accounted for. Is it marked to market? I was a bit surprised that you called out the BAMI stake is affecting the corporate center. But I don't think you mentioned the world line stakes. So just some explanation of what if that hasn't impacted, why it hasn't impacted. Thank you.
OK, at Kassib, it's true that this quarter there's been an evolution of the cost base, which was more or less in line with the evolution of the revenue base. Eight percent for the revenue, seven percent for the cost base, which is still a positive, positive Joe's. But keep in mind that we are operating for the first nine months of the year at 52.6 percent in terms of cost income ratio. It's probably one of the best cost income ratio for CID activities in Europe. And we think again that being able to monitor the CID activities within this region of, let's say, around 55 is quite coherent with the type of business that we're doing, with the type of risks that we're taking with our balance sheet. And so we prefer to invest in the development, in the further development of the business and trying to gain the additional one point of cost income in this activity. This is globally what we generally do. Once we've reached the level of cost income that we think is coherent with the type of activity of a business line, then we prefer to allocate the capacities that we generate. So we can invest to the development of the business rather than to a further optimization of the cost income, which may lead actually to some kind of reduction of the scope of the business. I think that somebody is not in mute. There is a noise on the line. Second point on Worldline and BPM. Actually, both of them are accounted for in the corporate center, but it happens that BPM is accounted for against P&L for some technical reasons that were linked to the way we've built the stake. Whereas when it comes to Worldline, it's not against P&L, it's against equity. So the valuation of the Worldline stake are, of course, taken into account, but that's impacting directly the equity. So they do not feed into the P&L. Thank you. And on consumer finance. Consumer finance, excuse me, remind me of your question. It was
just why the sequential quarterly volatility, it was up, I think, about 4% second quarter versus first quarter, then down about 3% third quarter versus second quarter. Just wondering why those quarterly movements yet today?
Frank, I don't have the precise answer in mind, but bear in mind that within the revenues of the consumer finance division, you have, of course, the bulk of the revenues, which is made of interest revenues. So it's the difference between the cost of the refinancing and then the revenues coming from the loan book. But there's also some revenues linked to the services that we sell to interest revenues and things like that. So this may vary over in one quarter over the previous one. So I guess this is coming from this element and possibly from insurance revenues. But we'll have to check and the team is getting back to you in order to to confirm the sensor. Great. Thanks very much.
The next question is from Stefan Stalman of Autonomous Research.
Hello, Stefan. Good morning, Jerome. Thank you very much for taking my questions. Just two small ones left. The first one is looking at the UK, where you have this slow moving train wreck of motor finance related legal claims. Is that something where critical is involved and exposed in any material way? And the second question goes back to insurance. I think you mentioned it, but I didn't catch the full explanation. Why did the risk-weighted assets and insurance increase by three billion? Was it a purely organic development or was there a capital injection? Thank you very much.
Thank you. Let me start with the insurance. It's very simple. You know, the insurance activities generate RWA consumption in connection with the carrying value of a credit record insurance. So when they generate results that are kept within a credit record insurance, this is increasing the carrying value, which is translated into RWA with this ratio of 370 percent. So every time they are making one euro of profit in a single quarter, they increase the RWA by 3.7. And of course, every time they upstream their results to CASA under the form of a dividend, there is a reduction in the carrying value and so a reduction in RWA. So there's not been any capital injection, nothing of this kind, but simply the results of the quarter have generated this increase in the carrying value. Plus also some elements in connection with unrealized capital gains on the portfolio of assets that are against the own funds of credit record insurance. So it's simply internal to credit record insurance. And every time they are going to upstream some dividend, it's going to reduce the carrying value and thus to reduce the RWA consumption. And generally, what happens is that they pay a yearly dividend in the second quarter and a first trench of dividend in the fourth quarter. So what we expect is that in Q4 this year, we are going to reduce the carrying value of credit record insurance and reduce the RWA consumption of this activity. In the UK, we have a very tiny activity of motor finance, which is linked to the business that we have with Telenetiste. So it's very, very tiny. So we are of course monitoring the situation closely, but we are absolutely not one of the tier one or even tier two players in this market. So it's not a very significant matter for us.
Thank you very
much, Joel.
Thank you.
The next question is from Anki Rengen of RBC.
Thank you very much. Somewhat different questions. And on this call, we talked a lot about floods and crops and so on. And I just wonder, is there a scenario under which you would review your credit risk with respect to climate change and potential risk weighting, so as well as taking additional provisions? Thank you very much.
Well, we have to account for all the risks that impact our loans, our credit. So of course, we try as much as possible to take into account with all the technical limits of what we can do from this point of view. But we have to take into account the impact of the climate change on our customers and on their credit worthiness. So of course, this is an element that is taken into account by our teams, risk teams. And in addition to that, I can mention that the ECB is looking at it very carefully. You may have seen that Mrs. Bourgh, the head of the SSM, is insisting on the fact that she wants the bank to really take into account that element. And we have actually to provide the ECB with some materiality assessment of the impact of the climate change on our risks. So this is already something we take into account in the credit criteria when we grant a loan and in the assessment of the credit worthiness of the counterparts when we monitor the portfolio.
Okay, thank you.
Thank you.
The final question is from Jacques-Henri Goulard of Kepler Chevrolet.
Jacques-Henri. Good morning. Salut, Jérôme. I'm last question. It doesn't bode well for my career, I tell you. But anyway, two questions. First, one of the big drivers of the stock price, I think, is really the big change of governance that you are facing quite soon. Maybe from where you sit, your perception about the fact that there would be any change of strategy or you would change the country priority or the businesses, knowing that clearly on the back of what you report in quarter after quarter, when it ain't broken, don't fix it, as the English say. And the second question would be, on LCL, you had this RWE migration you discussed. The cost of risk is up a little bit. Is there any tendency potentially of asset quality deteriorating a bit more than you thought in France over next year, actually? Thank you very much.
I don't have any crystal balls, so I'm not going to be able to say how the cost of risk is going to change in France. We are seeing in our accounts at LCL and in the regional banks what we are reading in the newspapers, i.e. an increase in the number of defaults, of delinquencies, of difficulties by different categories of corporates and SMEs. We are not seeing a wave of delinquencies and defaults. We are not seeing a massive increase of difficulties. It's concentrated in certain segments, especially in certain segments of activity, you know, contractors in connection with what we've said about the residential loan market. In the last two years, it's also in connection with some self-employed professional segments, especially in agriculture. So some areas of pockets of risk, but no wave of deterioration that we would see as of now. So I'm not predicting what is going to take place next year, but really it's not a wave. And again, we continue to have a cost of risk which is moderate overall, according to historical standards. I'm not in a position to comment the change in governance that you were referring to. I'm pretty confident in saying that I do not expect this to lead to a significant change in the strategy, because the strategy that has been in place over the last 10 years is completely the strategy of the group, not only the strategy of one man. And so it's definitely the group that is going to continue to behave like it did not only in the last 10 years, but also in the last several decades. So I do not expect a significant change of strategy, and I do not think it's broken, so I do not think it needs to be fixed. Fantastic. Thank you, Jean. Thank you. I think this was the last question, as you've said, Jacques-Henri. So thanks again to all of you for attending this call, and talk to you soon. Bye-bye.
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