Credit Agricole Unsp/Adr

Good morning. This is the conference operator. Welcome and thank you for joining the Crédit Agricole Third Quarter 2026 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star and 1 on your telephone. At this time, I would like to turn the conference over to Ms. Clotilde Langevin, Deputy General Manager of Crédit Agricole. Please go ahead, Madame.

Thank you very much. Hello, everyone. So I'm going to start with a few messages on these results that are very strong. So CASA is posting high results, close to 2 billion this quarter. And as a reminder, all of the variations that are presented here are based on the 2025 pro forma figures That is where Banco BPM is equity accounted at 20.1% in 2025. And we consider a few other retreatments, i.e., one, the Q3 2025 results from the cancellation of minority interest of CASEIS one year ago with the completion of the acquisition of Santander's 30.5% stake in CASEIS. And the second exceptional item, which is this quarter's results from the capital gain realized by Amundi with the IPO of the JV that they have with State Bank of India. And so if you exclude these two exceptional elements, net income grew by still a strong 11% over the year. And so as was already the case last quarter, this strong performance is in particular due to a very strong growth in revenues, 7.5% this time, with significant positive jobs, 5.1 percentage points, All of this resulting in a very high and stable profitability with an ROTE at 14.2%. Regarding solvency, despite some deterioration of market conditions, the CET1 ratios are at the end of September roughly stable compared to the end of June at 11.2% for CASA, a decrease of 10 basis points, and at roughly 17.3% for the group, an increase of 10 basis points. and I'll come back to that afterwards. Our liquidity positions are very strong and we have had an increase in liquidity reserves close to half a trillion euros. So this is globally a very good and strong quarter looking at financials but again it's a very rich quarter in terms of the deliveries linked to the strategic initiatives we announced a year ago with the presentation of our strategic plan Act 2028 and in the Q3 We announced a couple of elements linked to the development in Europe. I'm talking about the expansion in Germany with the launch of Canericole Deutschland, our universal bank in Germany, and the agreement to acquire IKB, which is one of the most established financing partners for the German Mittelstand. And we're also accelerating our transitions with the launch of Canericole Capital Naturel, which is a new division dedicated to the preservation, regeneration, and enhancement of natural capital, with a first focus on forests. and of course we confirm the acceleration of the AI transformation. This quarter is the effective launch of the group's AI company and of associated partnerships with Mistral and Prism AI. Moving to the description of these strategic initiatives, first one of our ambitions in the interim plan was to be a leader in Europe and in particular thanks to SEA Savings For which we're accelerating in terms of savings, it's a European platform that was first launched in Germany. As you can see here on the slide, we have seven unbalanced sheet products that are offered. This differentiates us vis-à-vis other digital players that have a lower array of saving products. Since the launch in Germany in April, this platform continues its development with a sustained acquisition dynamic, which is balanced with the preservation of margins. As you can see, we're targeting a rate of 650 new customers per day at the end of the year. We're already at more than 200 new customers per day. And we're preparing for the scale-up. We announced just last week a rollout of this savings platform in Belgium and in the Netherlands, and we should go out in six other European countries shortly from 2027 and onward. And of course, we're going to gradually expand our offer proposition towards financial off-balance sheet savings. So, there's going to be also cross-selling with Crédit Agricole Deutschland, as you can see on the next page. This has been launched much more recently, in October, and the idea is really to enter the customer relationship through savings, but to go beyond that and to offer everyday banking services, i.e. a current account, a debit card, access to consumer credit, and the idea is to have an app-first digital bank, including AI, but also we have 20 Crédit Plus branches which allow us to have this reinsurance in terms of physical human points. And again, the idea is to gradually enrich the offer with financial savings and retirement savings that will be added in 2027 with an upmarket shift through three tiers, free, intermediate and premium with increasing benefits and service. On the next page, that was for individual customers. But we also want to develop in Germany and the mid-caps. And so we announced this quarter a partnership, a project to acquire IKB, which is a recognized and long-standing player in German SMEs. IKB has an expertise in public loans and a team based in the largest German cities, six large German cities. And IKB is going to give us immediate access to a very large portfolio of close to 500 active SME clients in the German market. And the acquisition of IKB, as you can see the figures here, we're giving you the figures of the price, around $660 million, and it's going to generate value. We have a target of 15% ROI within three years. And so this value integrates what? The deepening of relationship with the existing clients of IKB, The expansion of the client base, the reactivation of historic clients, all this will be done through the mobilization of the balance sheets of Crédit Agricole to expand upon the current roughly 8 billion corporate loans. We're also going to develop cross-selling with our CIB activities, with our leasing and factoring activities in Germany, and we're also going to leverage on our existing corporate client base in France, in Italy, and in Poland to support these customers with the financing needs they may have for their activities in Germany. So regarding the price around 660 million, you can safely assume that the transaction should generate a little bit of a badwill. And for this ROI, we're very confident in our ability to generate significant value, both through cost synergies and revenue synergies. For the CT1 impact, we disclosed the 20 basis points impact at the time of the closing, which is planned at the end of the first half of 2027. And this should be considered relatively prudent because we have estimated RWA's in a conservative manner, including our potential more conservative views on the underlying ratings attributed to the loan portfolio. And we have, of course, safety buffers in our capital impact. The idea is really to avoid any negative surprise in the first half of 2027. The target is to be a leader in Europe, the second is to be a leader in transition and so on the next page you see a little bit of detail on the launching of Crédit Agricole Capital Naturel for which the idea is really to reinforce the one-stop-shop offering of the group on natural capital regeneration and we want to combine advisory services, investment, operational management of natural asset solutions And so the first area we're going to invest is really forestry, with two major initiatives at the European level. We're acquiring a majority stake in Ecotree, which is a leading French player that offers a comprehensive range of expertise of engineering and services in the forestry sector. And we're launching the Amundi Arboranova Fund, which is going to invest in the restoration and reforestation projects in France and across Europe. and the idea is to ultimately mobilize 200 million euros. So those are the strategic initiatives we announced this quarter. If I move to the key figures slide, just to take a step back from the listed entity to look at Group Crédit Agricole which posted a very strong performance this quarter with a strong increase of net income of 23% excluding the same exceptional items I mentioned earlier. And this performance is driven by revenues, which grew by 10.7%, with a strong increase that results from both CASA's activities and revenues, but also for the regional bank's activity, for which we have a very strong growth in revenues, 15.5%, benefiting again this quarter from a very strong upturn in net interest income, plus 41% quarter-over-quarter. The gross operating income grew by 23.6%. The cost-to-income ratio over the last nine months is well below 60% at 57.7% and this quarter we have very favorable jaws of 8.2 percentage points. The cost-to-risk is slightly increasing but remains very well managed at 31 basis points on outstanding and of course we have a very strong position in terms of solvency and liquidity as you see the reserves are up to 491 billion up $16 million compared to last quarter. And moving to CASA, we have a strong growth in revenues, positive jobs, a growth operating income that increased by 14.6% this quarter, so very strong performance that allows us to post 14.2% in terms of ROTE. On the next slide, this strong performance is, as often, due to a sustained activity in our business lines. So what we can note this quarter, customer capture, very strong, close to 1.8 million new customers year-to-date, and again, benefited from an increased digital acquisition both in France and in Italy. You see the details here on the slide. Since the beginning of the years, we launched a series of fully digital offers for LCL and the regional banks For professionals and individuals, B4Bank is pivoting towards a savings platform in France. And in Italy, digital customer acquisition represents 38% of customer capture. Now if we dig a little bit by business, in retail banking, we have a mixed loan production in France, where we have home loans that are decreasing a little bit, whereas corporate loan production is increasing. In Italy, the credit production is dynamic, driven by all of the segments. Corpus and Home Loans despite the competitive market. We have also dynamic production in Poland. And if we look at the assets, we have unbalanced sheet assets that continue to grow and we have a strong growth in off-balance sheet assets both in France and in Italy. And this explains the performance of asset gathering division in particular. In particular with insurance, we have yet another record level for Q3 of 12.4 billion in terms of premium income. This increased by 6% driven by all of the activities. What's interesting is we have a 20% market share in France on the savings and retirement growth inflows compared to around 15% on the outstanding. The net inflows were very strong, balanced between Euro and unit links. and we've reached 18.3 million contracts in P&C this quarter. We have strong net inflows for Amundi, 46 billion excluding the outflows from a low margin Indian mandate and we have AUMs that are stable compared to June of 2026 despite a negative market effect thanks to these net inflows. And finally, in wealth management, the AUMs are increasing with positive net inflows and favorable market effects. In CAPFM, the activity was impacted again this quarter by the unfavorable automobile market and this weighs on the resale of used cars which has an impact in terms of leases and Crédit Agricole Autobank Dravaglia and also this time we had an impact on the short-term rental activity of Dravaglia that has an impact on our revenue. But our business mix is very diversified and so again we have our CIB that posted a record of Q3 thanks to the thick activities plus 8.3 this quarter benefiting from increasing interest rates and very strong performance also in terms of financing activities and in particular trade finance and cash management. And finally, Caissez-Yves posted a strong activity with a high level of settlement and delivery volumes boosted by market volatility in 2027, and we have very high levels of assets under administration and conservation. And we're going to benefit soon from a new partnership that we announced with Edmond Rothschild in Luxembourg. If I move to the next slide on revenues, revenue growth was very high this quarter, as you can see, 7.5%, driven by a strong momentum in asset gathering. Made me thanks to higher management and technology fees at Amundi and to strong commissions in wealth management. The insurance revenues grew by more than 4% thanks to the savings and retirement business lines, thanks to this strong activity, which offset the impact of the weather-related events this quarter, droughts, crops, storms, and fires. I was talking just before about the record revenues for large customers. Despite the good performance in personal finance, which was supported by a positive price effect, the mobility continued to be impacted by a weak automobile market, and this resulted again this quarter in lower margins on used cars at Crédit Agricole Autobank, Dravaglia, and I talked just before about the significant drop in activity in the short-term rental. For retail banking, Now, this quarter, we again had a very strong upward turn in net interest income in LCL in France, 18% excluding Milais, thanks to positive price effects with, on the asset side, a front book rate that is well above the back book rate. And on the liability side, we still have a stable deposit mix. And Italy confirms the upward trend which started in Q2 with an increase of net interest income of more than 5%. Thanks to improved margins and a positive volume effect. Our fees increased in all geographies, in LCL and in Italy, thanks to strong savings activity, account management, and payment means. And so this revenue dynamic illustrates once again the strength of our universal banking model, underpinned in particular by these diversified revenues. If I move to costs, We have a significant positive jobs this quarter of 5.1 percentage points and as you can see here the increase in expenses is limited in all of the businesses. It's even decreasing for the asset gathering division because of a significant positive base effect linked to last year the 80 million exceptional restructuring costs that we booked at Amundi with the objective of generating 40 million cost of savings in a full year to fuel strategic investment. And so if you retreat this, as you see on the right, and for other non-recording items that are recorded at Crédit Crédit Tilly and a couple of scope effects and integration costs, you'll see that the increase in expenses remains very controlled at 3.4%. And in particular, it's the variable compensation increase linked to the strong performance of the CIB that explains Most of this increased in the large customers division. We also have strong investments, in particular in SFS because as you know it's an SFS that we're booking the investments of Crédit Agricole Savings and Crédit Agricole Deutschland with costs that represent around 17 million over the first nine months of the year. We should remain below 50 million in 2026. And of course, naturally, we're investing in the transformation of LCL with 67 million over the first nine months out of the 95 million expected in 2026. Recall that we talked in our workshop of a total of 350 million investments which should allow us to capture 1.2 million new customers by 2028. Cost of risk on the next page. So we have a cost of risk increase between the Q3 and Q3 of last year. Mainly, as you can see here, driven by an increase in Stage 1 and 2 provisions. So, this increase in Stage 1 and 2 provisions is a prudent provisioning. As you can see, we have very high loan loss reserves at Crédit Agricole SA level and at the group level. And most of this increase in Stage 1 and Stage 2 provisions is located at CAFIB, due to the cautious management of ratings on some files. There's also some less significant additions and other entities, for example in Foncarris, which is an entity in CASA that guarantees risk for the regional banks. All of this is a very cautious management of the loan book in the current context. On the other hand, incurred risk, i.e. stage 3 cost of risk, is under control this quarter, decreasing since the second quarter, and we see more or less the same trends as in previous quarters. We see for SFS the Stage 3 provisionings that are relatively stable at a high level nevertheless, linked to continuous tensions on consumer finance in France, and increasing a little bit in some international entities. And in retail banking, the incurred risk is relatively stable since the beginning of the year, but as you know, we continue to monitor a certain number of sectors that are retail distribution, transport, construction. So let me remind you, sorry, a small parenthesis on a technical issue. In the CIB last quarter, there was a technical transfer from stage 1 and 2 to stage 3 due to exposures that were being disposed of. The total exposure on these files was between 560 million. This quarter, we finalized the disposal of some of those files for just under 200 million, and so we still have a couple of other files, but we're expecting to dispose of most of these exposures by the end of the fourth quarter of 2026. And this explains the footnotes that you have on the coverage ratio in particular. In the end, we have no surge in loan loss provisions. The credit quality indicators are very high, with NPL ratios that remain stable and low, loan loss reserves and coverage ratios that are high. All of this would allow us to absorb and surge in incurred risk. And so our provisioning is, as always, prudent, and we have among the best coverage ratios in Europe. Of course, with that said, we're very cautious and we continue to monitor corporate customers and retail banking, consumer finance. All of that is under surveillance. And as you can see on the next page, we look in terms of cost of risk at each of the business lines. And so we're cautious regarding incurred risk for CAPFM in the international entities. Nevertheless, you see that we have a relatively stable cost of risk for CAPFM. And I just wanted to point out on the financing activities for the CIB, where the cost of risk reached 16 basis points this quarter, which is very low in absolute terms. And again, as I was saying, this increase is almost entirely driven by stage 1 and 2 additions, which is cautious rating management on some files. Of course, recall the very good quality of CASEB's customer base with investment-grade customers mainly, and diversified and balanced geopolitical risk. The increase in cost of risk for CADF is not material, mostly stage 1 and 2 additions. The cost of risk is very much under control in French retail banking. Note in particular for the regional banks, cautious stage 1 and 2 provisionings this quarter also, in line with the Q2. And for Credit Italia, there's a slight increase in the total, but credit metrics, quality metrics are still improving since last year. On the next page, all in all, as you can see, net income is high and increasing by 11%, excluding these two elements that I was talking about. Base effect linked to the cancellation of Cassez's minority interest, and this quarter's capital gain related to Amundi SBI JV, which is SBI-FM IPO. I also mentioned The very strong increase in revenues and positive jobs, which result in a strong increase in growth operating income of 14.6% over the year. As you can see, the cost of risk increased slightly, but really mainly driven by an increase in stage 1 and 2 provisions, reflecting the cautious management of the loan book. And net income, however, was impacted this quarter by a slight decrease in equity-accounted entities. We have roughly two opposite effects. The decrease in the contribution from Leasys by 48 million this year, again due to a very deteriorated automobile market with lower margins on used cars. This was partially offset by two positive elements. First of all, the equity accounted lines benefiting for Amundi from the new contribution of ICG. Amundi brought its participation in ICG to 9.9%. And of course, An increase in the contribution of Banco BPM, which represents 106 million euros in the Q3, thanks to our increase in our stake to 29.3%. Today, we are at 29.6% in the Q4. And also, despite the inclusion of an amortization that we talked about in the pre-closed note on PPA, with the Q1 and Q2 catch-up effect. What you can expect going forward, we're going to have a contribution to the Bank of BPM based upon what the consensus sees going forward and including this PPA amortization for 20 million euros per quarter. We should expect around 140 million contribution per quarter onwards. So all in all, we have net income that's increasing thanks to a very strong increase in growth operating income, activity buoyant, cost of risk controls on all of this bears witness, of course, to the strength of our diversified universal banking model, which helps us, for example, with strong activity in asset gathering, large customers, retail banking, and personal finance. This helps us weather more challenging conditions in the mobility business, where we remain very cautious about the outlook for the next several quarters. Moving to capital. Capital is very robust this quarter with a C-to-1 ratio of 11.2%, despite volatile rates environments. And so, as you know, we have a capacity, continued capacity, to generate organic capital generation, thanks to our ROTE, by the way, of 14.2%. So you see here, organic capital generation, 34 bps, distribution of 22 bps, which allows for a provision of a dividend of 85 cents per share, so roughly 10 basis points like every quarter of organic capital generation net of distribution and this quarter we were impacted by a few elements one you remember every year we have an employee rights issue that we compensate with a share buyback the net impact is four basis points and we have another effect which is quite reversible which is an impact in terms of the OCI's The fair value of our assets on capital, an impact of 13 basis points, and most of this impact comes from our insurance business, about 11 basis points, and the remaining two basis points comes from the banking activities. How is this sensitive to market conditions? The main impact, nine basis points, and of which about eight for insurance, is related to the evolution of rates. The rates moved by 76 basis points in the Q3. Then we have another impact, which is much lower, which is linked to the widening of spreads on French sovereign bonds by 42 basis points this quarter, two basis points. And the remaining two basis points impact comes from the widening of corporate spreads and the decrease in equity. What you have to really bear in mind is the fact that CASA's C2N ratio sensitivity to 100 basis points increase in rates is close to 10 beeps and its sensitivity to a move of the same magnitude on the French sovereign spread is close to 6 beeps. So a very limited impact of these market fluctuations on our CQ1 and very reversible also impact. As you can see, RWAs are very well managed. They even decreased this quarter thanks to, in particular, a continued activity in terms of securitization. And looking at effects, we have a couple of methodological impacts, plus 5 beeps in the Q4, minus 15 beeps probably in 2027, but something that's very stable. And again, I want to insist upon the fact that we have Organic Capital Generation Going Forward, Net of Distribution, as always, thanks to our model that generates capital with a strong ROTE. On the next page, our objective, nevertheless, is not to accumulate capital at the CASA level, and so when we assess capital strength, the relevant figure is the group CH1 ratio, which has increased this quarter to 17.3%, despite the market environment with more or less the same factors that apply as for CAVA with organic growth in particular of the retail banks, slightly lower impact on the OCIs and I wanted to stress also the strong QILAC ratio which is close to 28% thanks in particular to the fact that we accelerated our medium to long term funding plan which has been realized at 129% this year. Moving to liquidity, we have a very comfortable liquidity position with a high level, as you can see, an increasing of liquidity reserves at 491 billion. The LCR and NSFR ratios are excellent. We're above our target range for LCR, which is 110 to 130%. We exceeded our funding plan. The deposits have increased slightly, are still diversified and granular. And I just wanted to stress, I think on page 55 you have our exposure to the French sovereign, which is quite natural for a group like us, and we have a 26 billion exposure on the banking book, excluding trading, to the French OAT, so natural for a group like ours. And then I'm going to conclude on this page of income statements by saying that, to recall a little bit the main messages, we're posting strong and growing results thanks to the sustained activity in all of the business lines, and in particular to record performance in asset gathering, large customers, retail banking. This allows us to reach a record level of €7.1 billion in revenues, up 7.5%, which bears witness to our diversified business mix. which allows us to have a positive momentum in most of the business lines which allows us to weather more challenging conditions in the mobility business where we're very cautious about the outlook for the next quarters. Operational efficiency is controlled, we have a steady cost of risk, we continue to invest but cost to income ratio is decreasing and we're investing in the development in Europe as I was talking about, in AI, in the transformation of our businesses and in transitions. And all in all, we have a very high and stable profitability with a return on tangible equity of 14.2%. And this allows us to maintain strong capital levels that have a low sensitivity to market turbulence, strong capital liquidity, and low loss reserves, which allows us to approach the uncertain macroeconomic environment with a lot of confidence. So I'm going to stop here. Thank you very much for your attention and we can now open the floor to questions.

This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone 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 comes from Jacques-Henri Gollard with Kepler-Chevreux. Please go ahead.