French banks collect the good news … before the bad news arrives. The sector – which published its results in the last few days – has accumulated over the period (excluding Banque Postale and Crédit Mutuel who publish their half-yearly version) over 6 billion euros of net profit for the second quarter. The opportunity for most of them to warn that the rest of the year will undoubtedly be more difficult.
“Their pre-tax results and revenues exceeded expectations more significantly than those of their European counterparts,” said Jon Peace, head of European banking research at Credit Suisse. BNP Paribas even hit the quarterly record. What do French banks have in common? A wide range of assets (and therefore income), where trades that are doing well compensate for those that are stalled.
An 18% jump for Société Générale
In the last quarter, the investment bank pushed its results beyond analysts’ expectations. The climate of concern and therefore of volatility caused by the war in Ukraine, by the acceleration of inflation and by the movement of upward rates is under discussion. These factors increase the need for protection and reallocation of assets. At the end of the chain, banks benefit in particular from the sale of derivative products or from the increase in trading activity.
A potion that at BNP Paribas benefited the CIB division, already very powerful, and whose income jumped by 10.6% (and pre-tax income by 5.3%). Also in these businesses, the engine roars particularly in Société Générale with an 18% increase in profits and over 40% for the group’s share of net profit. “The first two quarters have been particularly favorable to our business mix,” acknowledged Slawomir Krupa, Deputy CEO of Société Générale, responsible for large customer businesses.
Less expected in this sector, Crédit Agricole SA (CASA) saw its broad customer division (which includes its investment bank) account for 42% of its quarterly results, up from 24% the previous year.
Rising revenues in “retail”
Retail banking also contributed to this good mood: many borrowers (households and businesses), fearing an increase in the cost of credit in the second half of the year, applied for a loan: hence a significant increase in credit volumes.
In Crédit Agricole’s 39 regional banks, as well as in LCL (branch of the green bank) – which dominate the real estate market – revenues increased by more than 9%. Retail revenues also increased from 8.5% to 11% at Société Générale and BNP Paribas. Production also increased at a rapid pace at La Banque Postale, Crédit Mutuel Alliance Fédérale and BPCE.
On the other hand, geopolitical uncertainties, in particular, have caused markets to decline over the past three months, resulting in a lower performance in savings and asset management businesses. The mechanics are relentless: the institution receives an income linked to the value of the assets it owns or manages.
The collapse of prices therefore automatically leads, all things being equal, to a fall in income. The war in Ukraine also played a more direct role, with the emergency sale of its Russian subsidiary costing Société Générale more than € 3 billion.
“We feel we are somewhere in between”
However, what has preserved – so far – the performance of banks is that a number of risks have not yet materialized. First of all, an increase in bank failures or insolvencies: in an obsessive way, banks have been promised an increase in the cost of risk since the health crisis of 2020. In recent weeks, the sector has allocated new measures, more preventive than curative – but loan portfolios remain of good quality at this stage.
Another risk, the euphoria on the mortgage market could subside in the coming months. “We feel we are somewhere in between,” explains a bank manager. “Everything will depend on the expectations that families will have on the evolution of interest rates and on the economic situation”, explained Philippe Brassac, managing director of Crédit Agricole SA, presenting the results of the group. Production “should decline and will be seen in the third and fourth quarters”, anticipates Frédéric Oudéa, boss of Société Générale.