Credit Agricole S A : Transcript des résultats du 3e trimestre et des 9 premiers mois 2022

Crédit Agricole Third Quarter 2022 Results

Thursday, 10th November 2022

Crédit Agricole Q3 2022 Results

Thursday, 10th November 2022

Introduction

Jérôme Grivet

CEO, Crédit Agricole

Welcome

Good afternoon. It is a pleasure for me to be with you this afternoon to present our Q3 and first nine months of the year results. I will go directly to the main figures. I will try to make the presentation as quickly as possible in order to allow for your questions afterwards.

CASA key figures

So let me start on page four, where you can see CASA's main figures. Maybe just a few highlights on this page. On the quarter, revenues are up close to 1% up as compared to Q3 2021, which was already a record quarter in terms of revenues. So again, this is the highest level ever for a third quarter.

Second point on the quarter, you see the cost of risk increasing moderately as compared to a basis in 2021, which was very low. Third element on this page, the CET1 ratio at 11% is at the target.

And last point, the return on tangible equity is at 12.5%, which is again above the target we had set for 2025.

If I look now at the first three quarters of the year, the nine months, revenues are up more sharply on the first nine months, plus 5%, almost 5%. The cost/income ratio in the first nine months at 58% is below our ceiling, below our commitment and at a very comfortable level. And the bottom line, the net profit for the first nine months, underlying net profit, close to €4 billion, €3.937 billion, is almost flat as compared to the first nine months of 2021, which was a record level.

Crédit Agricole Group key figures

If I go now on page five, where we have the Group's main figures, you will find more or less the same trend, i.e., revenues for the quarter, which are more or less stable. But for the first nine months, the revenues are significantly up, plus 3%.

Cost of risk is more sharply up for the Group globally, but you will see that at the level of the regional banks, we have been booking again this quarter a significant addition in terms of S1 and S2 provisions, so it does not translate any kind of increase in incurred risks. The net profit continues to be at a high level despite a small decrease as compared to 2021, both for the quarter and for the first nine months.

And lastly, for the Group, the solvency ratio at 17.2% is 8.3 percentage points above the SREP level.

Revenues up, strong profitability, solid balance sheet and capital

If I go now on page seven with the main messages we wanted to stress this quarter, I think that what is interesting to note is that in the third quarter of this year, we have continued to have an adverse environment in terms of markets. Rates continued to increase significantly and you will see that it is not necessarily only a good news.

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Crédit Agricole Q3 2022 Results

Thursday, 10th November 2022

Equities markets were significantly down in the third quarter, as was the case for the first two quarters, which has a significant impact on several of our activities. On the forex markets, the euro continued to decline quite significantly, especially compared to the dollar. Inflation kept being at a high level and probably higher than what we initially expected. And lastly, you know that this quarter, beginning of the third quarter, it was the end of the mechanism of bonus that applied to the TLTRO, which represented a significant add-on to our revenues up to the end of Q2 this year.

Despite that, we have managed to keep a high level of revenues, as I said, and a high level of profitability alongside with the solvency that was maintained at the target for CASA, and of course, that was at a very high level for the Group globally. And we have continued to roll out the different priorities of the medium-term plan with, amongst other elements, the signature of the deal between CACEIS and RBC, through which CACEIS is going to become the shareholder and the owner of the European activities of RBC in the course of next year.

Activity

Let me go now on page eight, where you have some elements regarding the underlying activities. I think that what we can see is that we have kept being very present vis-à-vis our customers in terms of lending. So the loan production continued to increase, both in retail banks, regional banks plus LCL, and also in consumer and leasing activities. This, of course, was very positive in terms of attractivity for the Group. And again, this quarter, it is close to 500,000 new customers we have managed to attract in our different retail banking networks in Europe, France, Italy and Poland.

So all in all, since the beginning of this year, it is 1.5 million new customers that we have attracted in our networks. And of course, this is generating a further increase in our revenues coming from additional activities like insurance, non-life insurance activities, where, again, we have seen an increase of close to 7% of the premium income.

Revenues

On page nine, some additional elements regarding our revenues, our top line. As I said, on nine months, the dynamic is absolutely excellent, plus close to 5% and even close to 3% at constant scope. On the third quarter, of course, the market conditions I was mentioning earlier made it a little bit more difficult for several of our activities, amongst which the asset management businesses and also in the Specialised Financial Services division, where we have had a significant increase in our refinancing costs.

But globally, thanks to the very good performances in the large customers division and also retail banking activities, we have managed to post for the businesses only a top line improving by around 2% on the quarter. And again, this is illustrated on the right-hand side of this page. Again, this quarter, we have managed to post a higher level of revenues than in the same quarter of last year. It has been steadily the case quarter after quarter in the last five years.

Expenses

On page 10, some elements regarding the costs. On nine months, the increase in the cost base is around 3.8% at constant scope, and it is below 3%, excluding the forex effect and on the quarter only the increase for the business line is limited to 2.9% at constant scope, so it is around €90 million increase this quarter, out of which you have close to €20 million in

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Crédit Agricole Q3 2022 Results

Thursday, 10th November 2022

connection with the salary increase we have decided to grant in the middle of this year. I was already mentioning this point in the previous call. And you have also €30 million of forex effect.

Gross operating income

If I go now on page 11, the evolution of the gross operating income. When we look only at the business lines, what you can see is that in the quarter, the gross operating income is very close to the one we had last year, minus 1%, and it is plus 2% on the first nine months of the year. And so, in average, we post a gross operating income, which is very significantly above the one we had back in 2019, so pre-pandemic.

Last point, the cost/income ratio that we have continues to be steadily below our ceiling of 60%. And also interesting to note that it is constantly in the last five years, 5 percentage points below the average of the biggest European banks. It is the chart that you have on the right-hand side of this page.

Risks

Going now to the cost of risk. What we can say this quarter is that we are back in terms of proven risk to the quarterly average of 2019. And if we look back at the way we were qualifying the cost of risk in 2019, we found it, at that time, very moderate. So clearly, we continue to have a cost of risk, which is very benign despite some increase if we compare the cost of risk with the same quarter last year, where it was abnormally low.

In terms of ratio, at CASA, we have globally a cost of risk, which is around 30 bps regarding the outstandings, be it on the basis of the last four quarters or on the basis of an annualisation of the last quarter, which is below the assumption of the medium-term plan.

And when it comes to the Group globally, we are at 22-23 bps, including a significant add-on again this quarter from the regional banks on the S1 and S2 provisions. It was already the case in Q2. So it means that the regional banks continue to be very prudent in terms of preparing for the future and complementing once again their prudential provisions.

Asset quality

This is illustrated on the following page, page 13, where you can see that at Group level, we have a global level of provisions, which more or less remains, since three years, in the same region, around €20 billion. But interestingly, the proportion in this amount of €20 billion of S1 and S2 provision has significantly increased. It now represents 42% of the total. And at CASA, we have exactly the same trend. And so S1 and S2 provision represent at CASA, 37% of the loan loss reserves that we have globally.

In terms of coverage ratio, we continue to have very high coverage ratios, 73% at CASA and 87% at Group globally.

This translates, and you have it on page 14, in a situation where both CASA and the Group post amongst the best performances in terms of coverage ratio in the space of European banks, which is illustrated on the left-hand side of the page. And as illustrated on the right- hand side of the page, it comes from the fact that we have a very diversified loan book in addition to a very strict credit standards.

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Crédit Agricole Q3 2022 Results

Thursday, 10th November 2022

Net income

Let me go now to the net profit on page 15. As you have seen, we have a slight decrease Q3-on-Q3, minus 10%, which is largely explained by the Corporate Centre, in which the deterioration of the level of profit is significantly related to some temporary and non-cash elements. We can go back on this point later on.

On the first nine months of the year, it is very stable, minus 0.6%, and it is 20.6% above the level we had back in 2019, so before the pandemic.

Profitability

In terms of profitability, page 16, you can see that the return on tangible equity, as I said, is at 12.5%. It is again 2.5 percentage points above the average of the biggest European banks.

Financial strength

Let me go now to the solvency, starting with CASA. This quarter, you can see on the waterfall on the left-hand side of the page that at CASA, the CET1 ratio decreased this quarter by around 30 bps, which is more than explained by market impacts, both in terms of a further deterioration of the OCI reserves coming from the insurance business, plus also a significant market impact on the RWA of the capital market activities at CACIB.

On the first nine months of the year, this is the right-hand side waterfall on this page, the depletion is of around 90 bps, out of which the day-to-day business generated an improvement of the capital situation by 34 bps (retained results 47 bps, and the different elements coming from the day-to-day management of the Group, i.e. a consumption of 13 bps). And the depletion is completely and more than completely explained by market effect.

The OCI reserves coming from the insurance activities represented on the first nine months of the year, a global impact of 84 bps. RWA and market effects on the capital consumption of CACIB's capital market activities, represent 24 bps. And in addition to that, you remember that in the first quarter of the year, we booked a significant deterioration of our exposures on Russian counterparts. This translated into additional provision, S1 and S2 provision, plus also an increase in the RWA density of those exposures.

What is interesting to note is that a significant part of these effects are going to revert in the future over time. It is especially the case of the OCI reserves of the insurance activities. If I summarise the situation, back end of 2021, we had a CET1 ratio of 11.9%, in which we had 30 bps of unrealised capital gains that we are going to pull to zero over time. We have now a CET1 ratio of 11%, which includes a negative component of 50 bps coming from the OCI reserves. And again, this negative component is going to pull to par over time, when the underlying bonds are going to mature progressively.

So this explains exactly how the situation evolved over the first three quarters of the year.

Globally, for the group, and you have it on page 18. On this quarter, we have more or less the same effect and the same impact as the one we have mentioned about CASA. So the CET1 ratio of the Group went down from 17.5% end of June to 17.2% end of September. But what you can see, and of course, you are perfectly aware of that, is that at 17.2%, the Group is one of the best capitalised GSIBs in Europe. And in terms of distance to SREP, with 830 bps, it is the best capitalised GSIB in Europe.

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