The value of the day in Paris – Crédit Agricole SA closes the season of results of the French banking sector on a positive note – 04/08/2022 at 11:10

(AOF) – The last major French listed bank to present second quarter accounts, Crédit Agricole SA followed the lead of its competitors, BNP Paribas and Société Générale, showing better-than-expected performance. On the stock exchange, Crédit Agricole SA stock took the lead in the CAC 40, with a gain of 3.87% at € 9.47. The second quarter was characterized in particular by record activity in corporate and investment banking, supported by the fixed income, credit, foreign exchange and commodities businesses.

Between April and June, the group’s share of net profits increased by 0.4% to € 1.976 billion, clearly exceeding the consensus of € 1.18 billion. The green bank is aiming for at least 5 billion in net profit this year – it has already generated 2.7 billion in the first half of 2022 – and over 6 billion euros in 2025.

Crédit Agricole SA benefited from dynamic revenues in the second quarter. Operational expenses increased by 8.8% to € 6.33 billion (excluding the contribution to the Single Resolution Fund), up by 6.1%. The market only advanced € 5.73 billion.

They were supported by record business at the Corporate and Investment Bank (BFI) level. Underlying revenues jumped 22% to € 1.58 billion. Markets and investment banking in particular stood out (+ 32.1% to € 814 million) in a context of high volatility and customer hedging needs. Within the latter, the activities of the FICC (interest rates, credit, foreign exchange and commodities) achieved a solid performance: + 36.9%.

In the data below, Crédit Agricole SA’s net banking income increased by 6.2% and expenses by 5.2%, which represents a positive 1 point jaws effect. It therefore recorded a cost / income ratio of 56.8% in the first half, below the target of less than 60% for 2022 and 2025.

In addition to this positive spread effect, Crédit Agricole SA’s results benefited from the 27.5% drop in the cost of risk to -203 million euros in the second quarter. It represented 17 basis points of outstanding customer loans on an annual basis.

The listed subsidiary of the Crédit Agricole group closed the quarter with an improvement in the equity ratio of 30 basis points, to 11.3%. It is 3.4 percentage points higher than the regulatory requirements.

Crédit Agricole SA recorded a return on tangible equity of 13.9% in adjusted data in the first half versus a target of at least 11% this year and over 12% in 2025.

Commenting on this publication, Philippe Brassac, CEO of Crédit Agricole SA, said: “In an opaque and uncertain environment, the Group continues its steady growth, thanks to its universal local banking model”.

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Key points

– Listed vehicle of the mutual group of the same name, 1st French bank and 8th world bank;

– Bank margin of € 22.7 billion, generated by retail banking at 65%, specialized financial services at 12%, wholesale banking at 14% and asset and insurance management;

– 3-point business model – relational excellence by becoming the preferred bank of individuals, entrepreneurs and institutions, local responsibility to support digitalisation and social commitment by amplifying mutual commitment;

– 55.3% capital held by regional mutual societies, hence the strong presence of their representatives on the Board of Directors (10 out of 21 members) chaired by Dominique Lefebvre, of which Philippe Brassac is CEO;

– Solid financial position – CET 1 ratio of 17%, return on equity of 11.6% and liquidity reserves of € 472 billion.

Challenges

– Investor response to the new 2025 plan, having achieved the objectives of the 2019-2022 plan one year earlier than expected;

– Innovation strategy, one of the 3 levers of the business model: internally: 90% of the Group entities that have a “data-centric” architecture in 2022 and 300 million euros in IT efficiency gains, 100% of IT employees trained on new technologies at the University of Information Systems and tested 100% of emerging technologies on new services to businesses / customers: expansion of the range of leading applications (Ma banque Pro, Pro & Entreprises LCL, etc …), offer of solutions digital and mobile cash for small / medium merchants, European e-banking offer for large retailers and a full range of e-commerce;

– Enhanced environmental strategy: carbon neutrality by 2050 for its own footprint and on investment and financing portfolios / in 2022: total cessation of financing for unconventional hydrocarbon extraction projects, no mining or gas financing in the Arctic region / in 2025 : reduction to 20% in oil extraction, for all open funds actively managed by Amundi, energy rating higher than that of the competition and 20 billion euros committed to impact funds, renewable energy: doubling of the production capacity of renewable energy financed by Crédit Agricole Assurances at 10.5 GW

– 60% increase in investment banking exposure to non-carbon energies and development of the platform dedicated to hydrogen projects / 50% increase in the financing of renewable energies in France by Unifergie;

– Benefits from penetration into the Chinese (first foreign asset management company) and Indian (cash management offer) market;

– Strengthening of mobility financing through the partnership with Stellantis, operational in 2023 and the launch of an internal entity specialized in car, rental and mobility financing.

Challenges

– Shareholders’ equity of 13.2 euros per share, compared to the stock market price;

– Russia-Ukraine war: strong impact on 1st quarter profit due to provisions on risks of the 2 countries and the termination of loans to Russian companies;

– Integration of Italian CreVal and Lyxor;

– 2021 dividend of € 1.05 (of which € 0.2 for the 2019 recovery).

The negative effects of rising interest rates

Rising interest rates usually cause bank income to increase through loans. In Europe, according to a survey conducted by S&P of 85 banking institutions, the sector expects an average increase of 18% in the interest margin. However, this new inflationary environment also has undesirable effects, notably an increase in refinancing costs. It is also accompanied by the fear of a new recession, which would then affect all the bank’s activities, from loans to asset management, whose income is correlated to market valuations. Reassuring element: euro area banks are strong enough to cope with a deteriorating environment.

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