Crédit Agricole: Citi is no longer for sale – 16/11/2022 at 09:57

(AOF) – Citi lowered its Buy recommendation to Neutral and displays a price target of 10.20 euros on Crédit Agricole. The research department justifies its decision with its greater exposure to volatile markets, pressure on profitability in retail banking and a lower capital level than its peers.

AOF – FIND OUT MORE

Key points

– Listed vehicle of the homonymous mutual group, 1

time

French Bank and 8

th

Worldwide;

– Operating income of €22.7 billion, generated by 65% ​​of retail banking, 12% of specialized financial services, 14% of wholesale banking and asset management and insurance;

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

– 55.3% of capital held by regional mutuals, hence the strong presence of their representatives on the Board of Directors (10 members out of 21) chaired by Dominique Lefebvre, with Philippe Brassac as Chief Executive Officer;

– Solid financial position – at the end of June, CET 1 ratio at 11.3% and liquidity reserves at €468 billion.

Challenges

– New “Ambitions 2025” plan: net income above €6 billion and return on equity above 12% / acceleration of technological and digital transformation with a budget of €20 billion for IT and digital, of which €1 billion for technological transformation / cash distribution of 50% of the result;

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

– Environmental strategy aiming for carbon neutrality in 2050 for its footprint and for investment and financing portfolios; 2025 target: reduction to 20% of oil exposure to oil extraction / for Amundi’s open funds under active management, an energy rating higher than that of the competition and €20bn committed to impact / growth funds 60% of the exposure of the non-carbon energy investment bank and development of the platform dedicated to hydrogen projects / 50% increase in the financing of renewable energies in France / 2030 objective: launch of two new activities, Transitions & Energies for the accessibility of transitions accessible energy and Health & Territories for access to care and “aging well”;

– Benefits from the penetration of Chinese markets (1

time

foreign asset management company) and Indian (cash management offering);

– Strengthening of the financing of mobility through the partnership with Stellantis, operational in 2023 and the launch of a specialized internal subject.

Challenges

– Integration of Italian CreVal and Lyxor;

– High incidence of provisions and increase in the cost of risk in the Ukraine and Russia area, resulting in a 16.1% drop in net profit at 1

um

semester ;

– Difficult market prospects for 2

n/a

semester, excluding the United States: sharp decline in growth and rising inflation in Europe, stagflation in emerging countries and rise in key interest rates.

The negative effects of rising interest rates

Rising interest rates usually cause an increase in bank revenues through loans. In Europe, according to a survey conducted by S&P of 85 banking institutions, the sector expects an average increase in net interest income of 18%. However, this new inflationary environment also has unintended effects, notably an increase in refinancing costs. This 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: Eurozone banks are sound enough to deal with a deterioration in their environment.

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