Credit Agricole S A : Transcript of the third quarter and first nine months 2021 results

Crédit Agricole SA Q3 2021 Results

Wednesday, 10th November 2021

Crédit Agricole SA Q3 2021 Results

Wednesday, 10th November 2021

Introduction

Jérôme Grivet

CFO & Deputy General Manager, Crédit Agricole

Welcome

Thank you. Good afternoon, all of you. It is a pleasure for me to walk you rapidly through the document we have published this morning and to present you the main features of our results.

Crédit Agricole Group key figures

Let me go directly to page four, where you have the main figures related to Crédit Agricole Group globally. You can see that for this quarter we post a net profit of around €2.2 billion, both on a stated basis and an underlying basis as well. It is an increase of 25% on a stated basis, plus 15.6% on an underlying basis. For the first nine months of the year, the net profit is €6.7 billion on a stated basis and €6.2 billion on an underlying basis.

Maybe three additional comments on this page. First, you can see that this quarter the difference between underlying and stated is very tiny. Second point, this high level of profit, which is a record high level actually for a period of nine months, is reached, again, I would say, through the same virtuous mechanisms, i.e., an increase in the top line, generating a strong and solid increase in the gross operating income and a significant decrease in the cost of risk.

CASA key figures

Let me go now to the figures related to Crédit Agricole SA itself, where you will see more or less the same trend. The net profit at €1.4 billion for the quarter, both on a stated and underlying basis. It is an increase of 43% on a stated basis and plus 27% almost on an underlying basis. And for the first nine months of the year, the net profit is at €4.4 billion on a stated basis and €3.9 billion, almost €4 billion, on an underlying basis. It is an increase of close to 38%.

Key Messages

Record high results, continuing the trend observed over past quarters. Full unwinding of the switch

Let me go now to the main messages that we want to highlight this quarter. I think, again, we have a very robust commercial activity and we continue to capture new customers every quarter. This is generating a strong increase in the revenues and a strong increase in net profit, and the profitability stands at a high level again, 13.1% return on tangible equity for CASA over nine months. And this is leading us to confirm our friendly approach towards shareholder remuneration, with, as you know, a second share buyback operation, which is on its way nowadays, which is going to account for an additional €500 million.

The full unwinding of the switch mechanism will take place this very quarter on 16 November, i.e. next week, which is one year in advance as compared to the previous commitments that we had on this matter. And then we confirm the intention of repaying the remaining €0.40 of dividend per share that will deem we continue to owe to our shareholders after the skipped

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Crédit Agricole SA Q3 2021 Results

Wednesday, 10th November 2021

2019 dividend. And this is going to be done through a top-up on the coming next two dividends.

Last point may be on this page. We confirm our very strong commitment towards accompanying the transition to a decarbonated world, and we will give some highlights on this very important topic in a dedicated press conference that will take place on 1 December in three weeks' time.

Crédit Agricole Group activity

Robust commercial activity, high customer capture

Let me go now on page eight, where you can have some figures illustrating what I just said, i.e. a strong level of customer capture and also a very good level of activity which is illustrated with three items here: the loan production of the retail bank in France; the revenues coming from the sale of new P&C insurance policies; and the rebound in production of new consumer loans. But, of course, we could have illustrated this trend with many more figures.

Revenues

Surge in revenues, due to strong activity

Let me go now to page nine, where we have some indications regarding the evolution of the top line this quarter and on the first nine months. This quarter, the increase in the top line is very dynamic, plus 7.6% on the quarter and even plus 9.1% for the first nine months of the year. And it is also a very strong evolution as compared to the same period in 2019, which was the period pre-pandemic.

And even if we restate those figures from some scope effect, we still have a very dynamic evolution of the top line, plus 4.4% Q3 on Q3 and plus 7.3% nine months on nine months.

Maybe one additional comment on this page and you will find details in the appendix of the document. We continue to have a progressive modification of the breakdown of our revenues toward a higher share dedicated to fees and commission as compared to net interest income.

All in all, the evolution of the top line between the first nine months of 2019 and the first nine months of 2021 represents an additional €1.7 billion of revenues.

Expenses

Increase in expenses linked to the recovery in activity and a scope effect; positive jaw effect excluding scope effect

Coming now to the expenses on cost base on page ten. What we can see is that there has been indeed an increase in the level of cost this quarter and on the first nine months of the year, but if again we restate the figures from the scope effects and the scope effects have been indeed quite significant this quarter with, for example, the integration of CreVal with also some technical adjustments regarding the accounting of Crédit Agricole Consumer Finance Netherlands and some additional items.

So if we restate the evolution of the cost base from this scope effect, we post this quarter an increase of 3.8% of the cost base and plus 3.4% on nine months, which means that on both periods we continue to have a positive jaws effect.

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Crédit Agricole SA Q3 2021 Results

Wednesday, 10th November 2021

Maybe one last point on this cost base matter, the increase in the quarter represents a little bit more than €100 million restated from the scope effect and almost half of this increase is triggered by some additional provisions related to a variable compensation, be it bonuses, individual compensations, or also collective remuneration, especially in entities with a large number of employees like LCL.

Gross Operating Income

Generation of regularly growing revenues over the past five years, operational efficiency steadily improving

On page 11, we illustrate what is really a key feature of the business model of Crédit Agricole SA in the last four, five years. Here, we provide the figures since 2017. What you can see is that every quarter, be it the first quarter of the year, the second quarter, the third quarter, we have been able since 2017 to increase the revenue base. And in the same time, we have been able to decrease quite steadily the cost-to-income ratio. And if we look back to the first nine months of 2017 and we compare with the present figure, we have actually gained almost 5 percentage points in the cost-to-income ratio.

Asset Quality

Stable non performing loans ratio Q3/Q2, continued increase in coverage ratio

Going now to the asset quality and the cost of risk. What you can see on page 12 is that the asset quality continues to be very, very strong both on the perimeter of Crédit Agricole SA and for the regional banks, leading to a very impressive level of 2.2% of NPEs for the Group globally.

And as we have continued to be prudent in terms of provisioning, including the fact that we have added some further bucket one and bucket two provision again this quarter, the coverage ratio of our non-performing exposures with the different categories of provisions that we have in our balance sheet continued to grow significantly. We have reached now a level of 75% on the perimeter of CASA and 87% for the whole Group.

Risks

Stabilisation of cost of risk at a record low level, reflecting the effectiveness of support measures and the quality of the portfolio

On page 13, you can see that the cost of risk is decreasing very sharply as compared to Q3 2020. It is more or less stable as compared to Q2 2021. And as I said, it is made not only of Stage 3 provisioning, but also some slight positive adjustment on the Stage 1 and Stage 2 provisioning in connection with some sectorial approaches that, as you know, are performed in the Group under the local forward-looking approach.

We have not changed yet our macroeconomic scenarios. And we will do that in the fourth quarter, meaning that probably this is going to trigger some changes in the level of Stage 1 and Stage 2 provisioning end of this year.

Net Income Group Share

Surge in net income in all business lines, due to buoyant revenues

This is leading to the evolution of the net income Group share that is presented on page 14. And what you can see is that, as I have mentioned already, the net income Group share is sharply up, both on the quarter and for the first nine months of the year. And if we look

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Crédit Agricole SA Q3 2021 Results

Wednesday, 10th November 2021

globally on the first nine months of the year, you can see that we have been able to improve the net profit by around €1.1 billion in nine months, which is the combination of a very sharp increase in the gross operating income, plus €900 million, a significant decrease in the cost of risk, minus €1.2 billion, and of course, some negative elements, mainly the corporate taxes up around €1 billion.

So this explains how this increase of €1.1 billion in the net income has been performed. And it is really a balanced combination between the gross operating income and the decrease in the cost of risk.

Profitability

Underlying 9M-2021 ROTE 13.1%

On page 15, this slide we have already presented with the results of the second quarter. But again, the trend is very stable and very steady. We are posting a return on tangible equity, which is not only at a high level and significantly higher than last year, but also significantly above the average of our peers. And we are again close to 3.5 percentage points above the average of the sample of ten European banks that we have continued to follow this quarter.

Capital and Distribution

Last stage in the simplification of CASA's capital structure, in the shareholders' best interest

On page 16, just to look back on all the elements regarding shareholder remuneration that took place or that are going to take place this year. Just as a reminder, two share buyback operations representing above €1 billion and around 30 bps of CET1 invested. Two tranches of switch dismantling, one that took place beginning of March and the second one that is going to complete the unwinding middle of November this year.

All in all, this represents 80 bps of CET1 invested. The first series of operations, the share buyback is obviously going to reduce the number of shares. The second series of operation, the switch dismantling is going to generate an improvement of the net profit. So all in all, this is positive for the earnings per share.

And in addition to that, we confirm our dividend policy, which is going to allow us to fully repay the skipped 2019 dividend in three instalments, I would say. The first one, €0.30 per share, took place beginning of this year, and the next two are going to take place alongside the payment of the normal dividend for 2021 and 2022 for the remaining €0.40.

So all in all, over the course of the present medium-term plan, we will have respected fully our commitment to pay to our shareholders 50% of the attributable profit in cash.

Crédit Agricole SA - Business lines

Let me go now to a series of additional highlights business line by business line starting on page 18 with the asset gathering and insurance business division.

Asset Gathering and Insurance

Net income sharply up for the quarter (+24.8% Q3/Q3)

On page 18, what you can see is the evolution of the assets that we manage. They are, of course, sharply up amongst other elements to a positive market effect. And also, this

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