Credit Agricole S A : Transcript des résultats du 2e trimestre et du 1er semestre 2022

Crédit Agricole SA

2022 Second Quarter

and First Half Results

Thursday, 4th August 2022

H1 2022 Overview

Jérôme Grivet

CFO, Crédit Agricole

Welcome

Thank you. Good afternoon, everyone. Happy to present those results for the second quarter and the first half of 2022, which are indeed very good results. So I will try to speed in the presentation itself and to leave time for your questions afterwards.

CASA key figures

Let me start on page four with the results of CASA. What you can see for CASA is that the top line is very dynamic, +6.2% this quarter and close to 7% up for the first half of the year. There is a positive jaws effect. The cost of risk is down this quarter, -20%. And all in all, this is leading to a net profit underlying of €1.9 billion, up 18% as compared to 2021. And the solvency is up by 30 bps at 11.3%.

Crédit Agricole Group key figures

If I go now on page five for the figures for the Group globally, what we can see is that also we have a very high level of profits, close to €2.5 billion of net profit for the quarter underlying and close to €2.8 billion stated. And for the first half, around €4 billion of net profit both stated and underlying.

What you may note this quarter is that the cost of risk at Group level is up quite significantly, actually, +38%. We will see that more in detail when we will look at the P&L of the regional banks, but it is clear that the regional banks have taken advantage this quarter of the booking of a very important dividend coming from CASA's results last year to further increase quite significantly their bucket 1 and bucket 2 provision. It is a figure of around €300 million, so it represents around half, the €615 million of cost of risk this quarter. The solvency at Group level is now 17.5%, so it is up 50 bps for the quarter.

Dynamic activity, solid capital position

Let me go now on page seven, where you can see that actually this very good level of result is indeed triggered by a very dynamic activity, both commercially in terms of new customers captured and also in terms of the development of the different businesses.

Activity

Strong commercial activity in all business lines, driven by the natural amplification of our model

More details on page 8, where you can see that indeed, this quarter we have managed to capture close to 0.5 million of new customers in France, Italy and Poland, and one million customers for the first half of the year. It represents an increase of the overall level of customers, net figure of around 240,000 for the semester, which is perfectly and even more than perfectly on track with the target of attracting net one million new customers up to 2025.

Production of new loans is significantly up. You have several examples here. For the regional banks and LCL, it is up 8.5%. Maybe interestingly, we can note that the production of new loan is differentiated whether you consider home loans, consumer credit loans or

corporate loans. And indeed, in France, it is up 2% for home loans, 9% for consumer credit loans and 20% for businesses and corporate loans.

In addition to that, we can see that we continued to gain market share in P&C activities, and the consumer credit and leasing business is also rebounding sharply.

Revenues

Sharp increase in revenues thanks to dynamic activity in all business lines

On page 9, some elements on the evolution of the top line. We have a very strong increase in the revenues in Q2, as compared both to Q2 2021 and even more Q2 2020. And it is also the case for the semester. This significant increase is driven both by organic growth and also by the effects of the acquisition of Creval middle of last year, and Lyxor end of last year that are now included in our perimeter.

So the total increase in revenues is more or less two-third driven by organic growth and one-third by the effect of these acquisitions.

And last point maybe on this page, on the semester, all business lines have posted an increase in the level of their revenues.

Expenses

Positive jaws Q1/Q2

Going now on page 10 for the analysis of the cost basis. The cost base is up 5.2% this quarter. So there is a positive jaws effect between the 6.2% increase for the revenues and 5.2% for the cost base. What is interesting to note is that outside the Creval and Lyxor scope effect, the increase in costs is reduced down to 2.7%, and restated also from the ForEx effect.

You know that CACIB and Indosuez Wealth Management have a significant part of their costs that is denominated in dollar or other currencies that appreciated against euro this quarter. So restated from this Forex effect, the overall increase in the cost base is only 1.8% on the quarter, so it is only €58 million. So the jaws is positive whether you consider the figures on a gross basis or outside the scope effect or outside the scope and the Forex effect.

Last point we point here, the fact that we have accepted to hike the salaries in France beginning this quarter, the third quarter, so it means that we will have a further slight but further increase in the cost base in Q3 and Q4 this year ahead of the normal schedule, which is an increase in salaries beginning of the year.

Gross operating income

Sharp increase in gross operating income Q2/Q2 and H1/H1, improvement in cost/income ratio

Let me now look at the gross operating income on page 11. You can see that this quarter, all in all, the net profit increased by €300 million. It is triggered by an increase in the gross operating income of close to €200 million and a cost/income ratio for the first half of the year stands now at 56.8%. So it is a further decrease as compared to the figure we have posted for the full year 2021.

Risks

Decrease in cost of risk

On page 12, some elements on the cost of risk. So as I said, on the perimeter of CASA, you can see that the cost of risk is indeed declining by around 20%. So it is a decrease by €50 million on the quarter. And on the perimeter of the Group globally, there is an increase, a quite significant +38%, but it is, of course, triggered by this very strong and prudential effort of the regional banks, as I already explained.

If you just look at the level of the Stage 3 provisioning, we have a level that is normalised both at Group and CASA level normalised at rather low levels. And overall, the cost of risk stands at 17 bps for CASA and 23 bps for the Group, which is definitely significantly below the assumptions that we have made for the medium term plan.

Maybe a last point on this page. You remember that we have disclosed and given details on our exposure on Russian counterparts, which were declining since the beginning of the war up to the end of the first quarter. So the reduction has continued in the second quarter by around €400 million, so between end of March and end of June.

Asset quality

On page 13, some elements on the quality of the loan book. You can see that the level of non-performing loans continues to be very, very low and more or less stable around the very low levels that we have already reached since several quarters to 2.5% on the perimeter of CASA, 1.6% at the level of the regional banks, and in average, 2% for the Group.

The coverage ratio continues to be very high, and the level of the overall loan loss reserves is high. But what is interesting to note, and it is illustrated on the left-hand side chart of this page, is that the breakdown of these loan loss reserves has significantly shifted since 2019. The proportion of Bucket 1 and Bucket 2 provision has very significantly increased as compared to the decrease of the Stage 3 provisioning linked, of course, to the better quality of the loan book.

Net income

Strong increase in net income driven by increase in gross operating income and improvement in the cost of risk

On page 14, just simply the analysis of which were the drivers of the improvement of the net profit. The net profit improved by around €300 million in the quarter, +18% as I already said. This is triggered by the improvement of the gross operating income by around €200 million. The cost of risk decline accounts for another €50 million.

And then the last elements taxes, equity accounted entity and other specific items, account for the last €50 million.

What is interesting also to note is that on the first half of the year, we managed to post an increase also in the net profitability. So it means that overall the effect of the specific provisions that we had to book in the first quarter regarding the Russian exposure is now completely absorbed in terms of profitability.

Profitability

On page 15, the traditional view of the return on tangible equity at CASA as compared to the sample of the more or less ten European peers for which we have the information. We continue to be significantly above the average of this sample, 13.9% return on tangible equity for CASA and 10.3% return on tangible equity for the sample. So it is really part of our DNA to be able to post a very high level of profitability.

Publication of "2025 Ambitions" MTP on 22 June 2022

And then on page 16, just as a reminder in the middle of the page, the figures for the first half of 2022 that compares to the target that we had initially set for 2022 globally in the previous medium term plan and to the targets that we have reset for 2025 in the new medium term plan published a few weeks ago. All in all, what we can say is that we are on track.

And just also last point to mention, we have already accrued €0.38 per share of dividend end of June.

Asset Gathering and Insurance

Steady activity for the business line, stable H1/H1 net income

Let me go now to page 18, and we will start to look a little bit more in detail on the performances and the activity of the different business lines and business divisions.

Starting with the Asset Gathering and Insurance division, let me just, on this page, a few messages. The first message is, of course, that the market effect has been significantly negative this quarter. But nevertheless, and this is important from a commercial dynamic point of view, all the three components of this business divisions managed to post positive net inflows.

It is the case for Amundi, for the life insurance activities and also for the wealth management activities. And all in all, the net profit of the division for the first half of the year is more or less stable to what it was last year, which is a very good performance considering the markets in which we have been navigating since the beginning of the year.

Insurance

Dynamic property and casualty and personal protection, high solvency

If we zoom now a little bit on the insurance activities on page 19. What we can say commercially is that in life insurance activities, the gross inflows were slightly down as compared to Q2 2021. But nevertheless, we have had, as I say, positive net inflows of a respectable amount of €1.3 billion, which were more than completely explained by unit- linked net inflows.

In P&C and Protection businesses, the premium income continues to be very rapidly progressing, +10% for P&C and close to +8% for Protection businesses. And then the net profit of the quarter, which appears to be slightly down, -3%, apparently would have been indeed a positive +3.4% if we restate the figure from a specific tax component that is linked to the fact that Crédit Agricole Assurances has upstreamed €2 billion of extra dividend to CASA during the quarter.