Ladies and gentlemen, thank you for standing by, and welcome to the results of the third quarter and the first nine months of 2020 call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question -and -answer session. To ask a question during the session, you will need to press star one on your telephone. I must advise you that this call is being recorded today, Wednesday, the 4th of November, 2020. I would now like to hand the call over to your first speaker today. Please go ahead.
Good afternoon to every one of you. I'll try to make a very quick presentation, especially today, because I imagine that some of you may have in mind some other topics and other worries than simply our results. Let me start directly on page four of the presentation, where you have the main figures in terms of profitability for the group. I just want to make a few comments on this page. First, keep in mind that from a macroeconomic point of view, but also from a group point of view, the third quarter of this year was earmarked with a very significant rebound in the level of activity. What we show on this page is that we have had very good operational performances, which translate, for example, with a gross operating income, which is up both for the group and for CASA.
Our net profit is very resilient despite the level of the cost of risk. I'll go back on this question later on. You can see that both for the group and for CASA, especially if you look at the underlying figures, the level of profit is very close or even a little bit above the one that we've posted last year for the same period. Solvency is progressing very rapidly and is now reaching record levels, both for CASA and for the group. Last point on this page, the return on tangible equity for CASA at 10% annualized for the first nine months of the year is again, very resilient, despite the very high level of capital that we have for CASA.
If I go now to the next page, I told you that gross operating income were up both for CASA and for the group on the quarter. This is the result of a top line, which is up in both cases, and a cost line, which is down in both cases. It means that we have significantly improved our cost income ratios in the two perimeters. In addition to that, we continue to have a very high quality of our loan books and a coverage of the NPLs, which continue to be very comfortable. We've continued this quarter to engage into operations, leading to a simplification of the scope of the group with the sale of the residual stake that we had in Banque Saudi Fransi, with the sale of a small Spanish bank that belonged mostly to one of the regional banks of Crédit Agricole, Bankoa.
Lastly, with the initiation of the sale process of CACF NL, our consumer credit operation in the Netherlands, which is now declassified under IFRS five. In addition to that, we can mention that the main elements explaining the difference between the stated and the underlying figures in terms of profit for CASA and for the group are explained precisely by those last two elements, the declassification of CACF NL and the sale of Bankoa. If I go on the next page six, you can see an illustration of what I just explained, i.e., the very sharp rebound in the level of activity, for the group with all the indicators that are shown on this page that clearly are rebounding very significantly, very dynamically after the lockdown period this spring.
You see that in most cases, we are now not only catching up with the level pre-crisis, but also above this level. This is especially important in terms of customer capture, where we continue to grow actually our customer bases in retail banking activities. If I go on the next page, just a few elements to highlight the contribution of the group to this very specific period for our clients across the board. We've been very active in granting to our customers state-guaranteed loans with a total amount of close to EUR 30 billion in France. We have been also very active in granting our customers payment holidays. We've granted payment holidays to our customers in more than 500,000 occasions.
At the end of September, two-third of these payment holidays had ended, and every time the normal repayment date has been passed, 97 of the payment have resumed without any difficulty, showing that actually this payment holiday was a very useful and practical tool in order for us to help our customers. If I go on the following page, just an illustration of the reason why we've proven so robust and so able to navigate through this very special year without any major impact on our P&L. It's clearly the result of the strength of our business model, universal banking model, with a very solid customer base in retail banking activities, more than 50 million customers in our own retail network.
Plus the addition of a very significant series of strategy partnership, 24 as of today, which give us access to many more customers in order to sell the product of our different specialized business lines. Clearly, the combination of those two elements is providing solidity and resilience to the group very significantly. If I go on the next page, it's a summary of what I would call the robustness indicators of the group, which are summarized on this page. A CET1 ratio of 17%, a very high-quality loan book with a level of NPL, which is only at 2.5% end of September. A very prudent provision approach, which is leading to a coverage ratio of those NPL of 80%, above 80% at group level. Lastly, a liquidity position which is very comfortable with liquidity reserves, which are in excess of EUR 400 billion end of September.
Let me now dig a little bit inside the performances of Crédit Agricole SA itself, starting with the revenues on page 11. What you can see is that both on the quarter and on the first nine months of the year, we've managed to post a positive evolution of the top line, + 1.5% for the quarter and + 2% for the first nine months of the year. It's a very good performance, which is clearly the result of the diversification of our businesses, and also the high proportion of our revenues being recurrent. We've tried to calculate the proportion of our revenues, which are linked to recurring activities or recurring contracts or recurring services that we sell to our customers. Actually, we end up with the conclusion that more than three-quarters of our revenues are clearly recurring, i.e., providing resilience and solidity to our top line.
If I go on the next page, the cost line, page 12, what you can see is that on the quarter, we've managed to decrease a little bit the cost base by 1.2%, and actually it's been stable across the first nine months of the year. What is even more interesting is that in the business lines where we had to record a decrease in the top line, which happened in some of our business lines, we've managed at the same time to decrease the cost line in order to preserve as much as possible the profitability. It's another illustration of the efficiency of our method of monitoring the cost base. Each business line is responsible for its cost base, and it has to defend as much as possible its own cost-to-income ratio.
This is the most efficient way to monitor globally the cost base in a very decentralized group like our group. This is leading to a very impressive performance in terms of cost efficiency across the board. If I take a helicopter view on this issue of cost efficiency, and if I look back to where we were in Q3 2015, I acknowledge that we've been able to decrease in five years the cost-to-income ratio of CASA by more than 11 percentage points, going down from 69.4% to 58.1%. It's a very impressive and solid performance. Going now to the risks and the quality of our loan book. I've said that at group level, we have 2.5% NPL ratio and more than 80% coverage ratio.
We have also a very high quality of exposure at CASA level with an NPL ratio, which is a little bit below 3.5% and with a coverage ratio, which is close to 70%. You may see that the coverage ratio on those two perimeters is a little bit down as compared to the end of June. It is almost totally explained by a technical factor, which is, to put it in a nutshell, leading to a slight increase of the stage three, so the non-performing loan bucket, without needing an increase in the same proportion of the provision, because it's made of default under observation and not real defaults.
In terms of cost of risk this quarter, on page 14, what you can see is that it is still significantly above the cost of risk that we posted in Q3 2019, but it has started to decrease as compared to Q2 2020. It has decreased indeed quite significantly, -1/3 on CASA's perimeter, and almost a division by two on the group's perimeter. We continue to have a significant proportion of the cost of risk, which is made of provision on the performing loans in our portfolio. It's the provisions related to stage one and stage two assets. Actually, in our outstandings of loan loss provisions, one quarter of these provision for CASA and almost 30% for the group are made of stage one and stage two provisions.
If I go now to page 15, which is providing some details by business line, what you can see is that actually in all cases, we have the same type of phenomenon as the one I have described globally, i.e., a significant proportion of the provisioning, which is made of stage one and stage two provisioning, and a decrease of the level of additional provision as compared to Q2. Maybe one element I can mention, which is very special to the consumer credit business, this new definition of the default has indeed triggered a significant move between bucket two and bucket three. This is leading to a significant one-off, where we have reduced significantly the bucket two provisioning and replaced it by the same amount of bucket three.
Of course, the overall level of cost of risk is the "normal" level, considering the context in which we are now. This is leading to the level of net income globally on page 16. What you can see is that actually the decrease in the level of net income, both on the quarter and on the first nine months of the year, especially restated from the contribution to the Single Resolution Fund, which once again has increased this year as compared to the previous year. We are - 9% on the quarter and - 8.8% on the first nine months. I think it's a very impressive performance to be able to post such a resilience in terms of net profit when you see such an increase in the level of the cost of risk compared to the previous year.
Business line by business line, you see that the evolutions are differentiated. Maybe just let me mention one point on this quarter. On the asset gathering business division, you see a decrease of EUR 42 million of the net profit. It is more than explained by an accounting issue, which is the simple fact that within the perimeter of Crédit Agricole Assurance, we have modified this quarter the way we account for the AT1 coupons issued by Crédit Agricole Assurance. Up to now, they were accounted for against equity, and they are now accounted for directly in the P&L on the minority interest, but it doesn't change anything economically. If I zoom a little bit now in the different business lines, starting precisely with the asset gathering and insurance business division.
On page 18, globally, what you can see is that the level of activity has been quite dynamic with especially a very high level of net new inflows for Amundi, close to EUR 35 billion, plus a positive market effect. As I said, the contribution of this business division to the net profit of CASA will have been stable outside this technical and accounting issue, which, again, doesn't change anything from an economic viewpoint. Insurance activities, to put it in a nutshell, it's been a very good quarter in terms of activity, despite the fact that the total premium income has decreased, actually it has been decreasing because of life insurance activities, and in life insurance activities, we've nevertheless managed to keep a positive level of net inflows. Again, we've managed to have a very significant proportion of the net inflows made of unit-linked products.
For the other insurance activities, the capture in term of production of new policies has been very impressive, and so the premium income is up around 10%, both for P&C and for protection. This is leading to a very solid financial performance because, again, if you look on page 19 on the P&L, you'll see that the net income is up 1%, and this is only the minority interest which is leading to a decrease in the net income group share. If I go now on Amundi, I'll be very swift because you have seen Amundi's publication last week. Very positive new inflows. Revenues, which continue to suffer from a management fees standpoint, but there is an almost complete catch-up thanks to the cost line and all in all, a profit which is slightly up this quarter, the contribution to CASA's net profit.
Retail banking, starting with LCL, another very good quarter at LCL, with all indicators oriented positively. It's been the case for the customer capture, for the evolution of loans outstandings, for the customer savings, for the equipment of our customers in additional services and products. It's been also the case from a financial viewpoint with revenues up, thanks to a good combination of fees and net interest margin, costs down, cost of risk up, but nevertheless, net income group share this quarter up 14%. Italy, Crédit Agricole Italia, a good level of activity and a good quarter in terms of catch-up of the production of new loans and new contracts with our customers. Revenues which are almost stable, costs slightly down, cost of risk up significantly, but lower than the previous quarter, and a decent level of profitability all in all.
The rest of the international retail banking activities suffered again this quarter, mostly because of the combination of a significant decrease in interest rates and flattening of the yield curves in the different countries where we operate. A Forex effect, which is also negative when we translate into euro , the revenues generated locally. Nevertheless, we continue to monitor those activities with a very safe framework, and we continue to have a local self-financing of the loan book, which is good, and coverage of the NPLs, which is above 100%. Specialized financial services. This is the division in which we have these very specific effects linked to the reclassification under IFRS five of CACF NL.
When it comes to consumer credit and when it comes to its activities, the production of new loans this quarter was very good, and actually it was above the production of consumer loans in the third quarter of 2019. Revenues restated from this perimeter effect linked to CACF were actually only marginally down -1.4%, and expenses are down more significantly, -2.5%, which is leading to a stable gross operating income and a net income, which is only slightly down globally. A very good resilience and a very good catch-up after the period of lockdown in the second quarter. For the leasing and factoring activities, it was a more difficult quarter. The production of new contracts was good, but the transformation of these new contracts into effective revenues is lagging a little bit, so we expect a better fourth quarter. Large customer division.
This is definitely the division in which the top line was the most dynamic, globally close to 12% evolution of the top line, with all activity indicators positively oriented, both for the CIB and for the asset servicing activities. In the asset servicing activities, we continue to work on the integration of Santander Securities Services into our setup, and we continue also to work on the integration of KAS BANK. We have had the latest authorization that will enable us to proceed to the mergers only a few days ago, actually. There's a lot of work ahead of us in order to generate additional cost savings. CIB, more specifically, on page 26, what you can see is that we've posted an increase of around 10% of the top line, which is the combination of a very, very good dynamic on the capital market activities.
On the financing activity , actually restated from Forex effects and from a base effect, which is linked to the fact that in Q3 2019, for the last time, we had booked in this division a dividend that we received from Banque Saudi Fransi. Actually, revenues are also up in the financing division of the CIB. The costs are only modestly up, in connection with the good level of activity. The cost of risk is definitely significantly higher than one year ago. It's close to a multiplication by five, the biggest part of this provisioning is linked to performing assets. Actually, this quarter, the stage three provision is representing only a very modest part of the global provisioning. Lastly, the level of RWA within CACIB has decreased quite significantly this quarter. This is also helping the profitability overall. Corporate center on page 27.
We continue to follow the same path, which is a progressive reduction in the structural cost of the corporate center. This quarter, we've benefited also from additional contribution, which is all in all, leading to a exceptionally low level of cost for the corporate center. Regional banks of Crédit Agricole on page 29. We are seeing more or less the same trends as the ones we see at LCL, i.e, a good level of customer capture and an increase of the customer base, a very dynamic evolution of the loan book, a very dynamic evolution of the production of new insurance policies on the basis of our customer base, leading, all in all, to an increase in the top line, a decrease in the cost line, and due to these technical effects about the new definition of default, also a significant reduction in the cost of risk.
All in all, the contribution of the regional banks to the net income of the group globally is up this quarter, +12.5%. We can go now on page 31 in order to take a look at the way we've managed to increase so significantly our solvency. This is the combination of a reduction in the level of RWAs, which you see on the left-hand side of the page. The consumption of RWAs by the different business lines is down, despite the dynamic of the production of new loans, because actually the new loans that we produce are home loans at LCL or Crédit Agricole Italia. Where we've seen reduction is the portfolio of loans containing a higher level of RWAs. We've benefited also from Forex effect and from technical effects, which all in all led to this reduction in the level of RWAs.
The other elements are more or less compensated. This is leading to this reduction in RWAs. When you combine that reduction with a good level of profitability after having reserved a dividend to be paid in 2021, weather permitting, plus some methodological effects which this quarter are positive, this is leading to this very high level of solvency at CASA, 12.6%. It's, of course, far above any regulatory requirement and also far above our targets. For the group, it's more or less the same story. We have a reduction in the level of RWAs for the same reason, - EUR 11 billion. We have a good level of results. We provision, of course, the dividend to be paid in 2021. We have also some positive methodological effects.
All in all, this is leading to a 90 basis increase in the solvency of the group on this quarter only, and to a buffer of above 800 basis points above the Pillar two requirements. In terms of liquidity, I think I can go very rapidly because, again, we are in a very comfortable situation, thanks both to the monetary policy put in place by the ECB, plus our very good capacity to access to collateral and to mobilize collateral whenever we need it. It's also the same story for the market funding programs of the group, which are completed at 97% for CASA and above 80% for the group globally at the end of the third quarter. All in all, and I am now on page 36, I think that the conclusion can be quite simple.
A very solid operational and financial performance this quarter, a very robust group and a very robust CASA from a balance sheet viewpoint, again, reinforced by this good financial performance and a group which is fully ready to continue to play its role in the management of this very specific crisis that we are navigating across. Thank you. I will now take your questions if you have some.
Thank you once again. As a reminder, if you do have a comment or a question, that's star one on your telephone. I'll wait for your name to be announced. That's star one if you have a comment or a question. If you wish to cancel this request, please press the hash key. Our first question comes from the line of Tarik El Mejjad of Bank of America. Your line is open. Please ask your question.
Hi, this is Tarik El Mejjad.
Hello, Tarik.
I have two questions, please. Hi, Jérôme. First one on the Italian M&A, it's not a surprise. Your share has been underperforming the index by 15%, 17% since the headlines came. I haven't heard you really denying it, and the market either. Can you please just tell us if it's something you exclude doing, or just maybe you can refresh what's your view in terms of consolidation in general and in particular in Italy? The second question is on the cost of risk. You didn't give us, again, the guidance for the full year or expectations, and I think in the press release you mentioned that Q4 could be tougher for some corporate and retail.
Do you still expect to add some more management overlay or stage one and two provisions as you did in Q3, or you think you are at the moment, given the assumptions of the second lockdown and so on, you are reserved enough, especially in the financing activities actually, where we still see some higher level of stage one and two in Q3? Thank you.
Thank you for those two good questions. Let me start with Italy. Let me start with what we do in Italy and what we do there since probably 30 years. We are present in Italy, not only in retail banking, but also, and I would even say, but above all, with our specialized business lines. It's the case for the asset management, for the consumer credit, car financing, leasing, factoring, CIB, wealth management, you name it. All our specialized business lines are present in Italy. In most cases, actually, I've forgotten to mention insurance, of course. All these business lines are present in Italy, not only on the basis of our own customer base in our retail banking activity, but also thanks to a whole series of partnerships that enabled us to grow, actually, our business line beyond our footprint in retail.
It's the same business model than the one we had in France, but simply it is a little bit skewed, I would say. In France, we have the largest market share in retail banking activities, and then on the basis of this customer base, we've built all the specialized business lines, and we struggle in order to try and grow our market shares in the different specialized business lines at the same size as the one of the retailer. In Italy, we've decided that because our retail footprint was much smaller, we needed to find scope by those partnerships. Globally, this is leading to a situation where two-third of the net profit that we've made in Italy last year, and it's the same situation for the first nine months of this year, and it was also the case in 2018.
2/3 of the profit come from the business lines, and 1/3 comes from the retail. Does it mean that we don't want to grow in retail? Absolutely not. We try as much as possible to grow organically, and all the performances that we post regularly show that we are indeed able to grow above the market and more than the market in the different product lines that are distributed by our retail banking branches. It's been also the case this quarter in home loans or whatever. Does this mean that we are not ready to take opportunities to accelerate this organic growth, taking advantage of, again, some opportunities? We've did it in the past, and we've did it, I think, quite successfully. Always keeping in mind that we have a prudent approach on M&A transaction, we may take opportunities.
Keep in mind that this is taking place in a global strategy, which is not a pure retail strategy and which is not a strategy on which we would assign the first role to M&A. This is the strategy that we follow in Italy. This is the strategy that we've been following in the last, again, 30 years and especially in the last five years, and we intend to continue alongside the same lines, prudently but decisively. Second question was about cost of risk and guidance. Again, I don't like to provide guidance, especially in such an undetermined environment. The environment is really difficult to read across, especially from a sanitary viewpoint, and it has consequences on the economic situation. We haven't provided guidance on the cost of risk end of Q1 and end of Q2. We are not going to provide guidance end of Q3.
What I can tell you, nevertheless, is that we haven't changed the macroeconomic scenario on which we base our bucket one and bucket two provisioning in the third quarter. We are probably going to change this scenario for the end of year accounts. Is this going to lead to a significant increase in the level of provisioning, i.e., bucket one and bucket two provisioning? Not necessarily, because our bucket one and bucket two provisioning is made of two layers, two additional layers. The first one is what we call the central forward-looking. It's the effect of the macroeconomic scenario that is applied to all businesses across the group horizontally. Each business line may, if it deems it necessary, to add up to this central forward-looking, a local forward-looking, which is based on a more accurate view on certain portfolios or certain geographies.
This quarter, indeed, the biggest part of the stage one and stage two provisioning, additional provision that we've booked, was the result within CACIB, within LCL, for example, of such local forward-looking. Of course, if we modify a little bit the global macroeconomic scenario that is leading to the central forward-looking, this will integrate, I would say, all these local provisions that have been booked in the third quarter in certain business lines, again, like LCL or CACIB. This is another reason why I don't expect a massive increase in stage one and stage two provisions. To summarize my answer, we will modify the scenario. It may lead to additional S1 and S2 provision, but I don't expect a massive increase. As far as the S3 provisions are concerned, we will simply see what the situation will be at the end of December.
Thank you. If I understand, when you were setting your Q3 stage one, two provisions, you had in mind some kind of form of lockdown, and probably not national lockdown, so you'll have to adjust for that? Yeah.
Yes. Actually, our scenario, which was established at the end of the first lockdown and end of the spring, beginning of the summer, proved in September to be a little bit more pessimistic than most of the official forecasts. We found out that it was enough pessimistic to be used for the Q3 accounts. We have now a few weeks time to fine-tune and to try to assess as best as possible the consequences of the new situation we are facing. Again, it's a moving situation. It's very difficult to precisely assess what is going to happen beginning of 2021, end of 2021, 2022, and so on and so forth.
It's very clear. Thank you very much, Jérôme.
Thank you.
Thank you. Our next question comes from the line of Jon Peace from Credit Suisse. Your line is open. Please ask your question.
Yeah. Thank you. Hi, Jérôme.
Hi.
My first question's on the CET1 ratio. Could you just remind us of any headwinds and tailwinds, I'm thinking software, for example, as we go into the year end?
With your reference to the 60 basis points for 2019 dividend effectively in your ratio, how you think about the potential for paying something additional on top of your 2020 accrual? Would you think it was prudent to hold a buffer for economic uncertainty or even for M&A?
Second one is just as a follow-up to Tarik's question. What would you consider as your normalized through the cycle cost of risk? Thank you.
Okay. Actually we haven't changed views regarding the "normalized cost of risk" across the cycle, from what we had assumed when we established the medium-term plan back in June 29. What we had said at this time was that the normalized cost of risk across the cycle at CASA was around 40 basis points, and at the group level globally was around 25 basis points. We haven't really changed our mind. We'll see if we convert towards these levels rapidly or maybe more slowly. We have no reason to change our views on what should be the cost of risk across the cycle, considering the business mix that we have in the different parameters of CASA on the one hand, and under the group on the other hand.
When it comes to the CET1 ratio, what we are expecting for the end of this year is, as you've mentioned, the potential benefits from the decision on the software. It's very cumbersome to fully calculate the impact, but it's going to be a matter of bps, not a matter of tenths of bps. What I expect is that it could be up to 10 bps of additional benefits both for CASA and for the group. Not much more. Again, it's quite cumbersome to calculate because we have to go through each of our IT investments to see what is the remaining duration of amortization and so on and so forth. In terms of headwinds, TRIM exercises continue, and we have a few billion of additional RWAs, probably to account for, especially in the perimeter of CACIB.
We don't know exactly how many billion. Will it be around EUR 5 billion? I don't know. It's going to be probably, maybe even above EUR 5 billion. We have still to analyze different TRIM reports and to discuss with the ECB, and so on and so forth. We have no precise indication on the calendar. Headwinds and tailwinds are expected, but globally, nothing which would change significantly considering the high level of solvency where we stand now. When it comes down to the 60 basis points dividend provision that we have kept, and actually, there was nothing else to do, because as soon as we had the decision that we couldn't pay a dividend in 2020, we had nothing else to do than reintegrating the 60 basis points of solvency into our ratio.
Well, we are not going to hurry to take a view on what we are going to do with this amount. I understand that the ECB intends to give some clarity on what is going to be possible to do in 2021. We'll wait for the ECB to talk and to express its views. Definitely, we think that if there is any openness in the ECB's statements, we definitely belong to the category of bank that could benefit from this openness because of the high level of solvency that we have. Maybe one last point, if CASA consumes 60 bps by paying its dividend like it intended to do in 2020, and was precluded to do, this consumes only around 15 bps at the level of the group globally. Clearly, you see that the dividend question for us is not a solvency issue.
Yes. Thank you.
Maybe just one last point. When I talked about headwinds and tailwinds, of course, it takes place within the global framework of 60 basis points that we had explained regarding the implementation of Basel IV that we had stated initially when we published the medium-term plan. It must be seen inside this, I would say, rough envelope.
Thank you.
Thank you. Our next question comes from the line of Jacques-Henri Gaulard from Kepler Cheuvreux. Your line is open. Please ask your question.
Very two quick questions for me. First of all, your AT1 costs are obviously down sharply for nine months. Is it okay to actually annualize this number as a proxy for the year and also for forthcoming years? B, you were mentioning the TLTRO, I would say reversible gain. If you can actually quantify that would be great. Thank you very much.
Well, what happened, as I explained, is that we had as for accounting methodological reasons, we had to modify a little bit the treatment of part of our AT1, the one that were issued by the insurance company. We've taken back, I would say, EUR 43 million this quarter, which were directly accounted for against equity up to now, and that we had to recycle through the P&L. Again, it doesn't change anything from a net asset standpoint or from an earnings per share standpoint, but it changes a little bit the way the P&L looks. This EUR 43 million is going to be increased in the fourth quarter by, I think, around EUR 25 additional million, which will follow exactly the same route.
Definitely going forward, around EUR 75 million of AT1 coupons, from the AT1s issued by Crédit Agricole Assurances are going now to appear in the P&L. When it comes to the AT1s issued directly by CASA, we are on the same page, i.e., the average yearly cost, which is not completely evenly broken across quarters.
Yeah
is around EUR 420 million.
Cool.
A little bit above EUR 400 million.
Thank you. For the TLTRO.
The TLTRO. Excuse me, Jacques-Henri. The TLTRO. Well, we've grown around EUR 125 billion of TLTRO III globally for the group. We've allocated certain amounts of those TLTRO drawing to the different business lines. Each business line being entitled to a certain amount considering its own contribution to the level of credit, the level of loans that are eligible to the TLTRO funding. It means that a significant part was attributed to the regional banks, a part to LCL, to CACIB, to CACF, and even to FCA Bank, and of course, a part to CASA directly. This is for the amount of TLTRO. I will let you make your own calculation in terms of what it is generating in terms of revenues, because we consider now that this TLTRO drawing is part of our global funding.
Each entity has a mix of liabilities in which we have costly liabilities and cheap liabilities. The TLTRO is clearly a cheap liability, especially for the first 12 months. We have also some home purchase saving plans which are very costly. Each business line has a combination of liabilities which it manages with its own ALM tools. The benefits of the TLTRO is really spread between the different business lines, and each business line has decided whether it was going to modify or not the rest of its funding. Globally, the group has taken EUR 125 billion of TLTRO III.
Thank you. Very clear.
Yep.
Our next question comes from the line of Phelbe Pace from Société Générale. Your line is open, please ask your question.
Hello, Phelbe.
Hello, good afternoon. Phelbe Pace from Soc Gen. Thank you for taking my question. I have a follow-up question to the one related to Italy, actually, but a bit more generic to your approach to M&A, if I may. You are obviously in a very comfortable capital position right now, which allows you to embrace external growth if you want to. But I guess despite the magnitude of your excess capital at the moment, it could still remain too limited if you wanted to opt for larger, more structural deals. That is not something bolt-on. Two questions here, please. First, would CASA have the appetite for larger M&A deals that couldn't be financed only with cash? Second, do you think that CASA has the capacity to conduct a larger acquisition in the near term?
Obviously we can imagine that integration could be significantly slowed down and especially more difficult to execute in the current context. Those are my questions. Thank you.
Good question again. First element of answer. This is not the excess of capital that we have that decides our strategy or our M&A strategy. It's exactly the opposite way. If we identify an operation which makes full sense from a strategic viewpoint that is accessible, that is coherent with what we want to do, and for which all the operational aspects are under control. You're perfectly right to mention the fact that it's probably more difficult to integrate some acquisition in the present period of time, because it's difficult simply for people to gather and to meet. If we are in such situation, we identify the way we are going to finance the operation. It's not the other way around, where we say, "Well, we have a few billion of excess of capital.
What can we do with it?" It's absolutely not the way we think about that. Are we ready to engage into operation that may need not only our excess of cash? Well, in the past, we did an operation. Actually, it was through Amundi, but Amundi made a significant acquisition that required a capital increase. Actually, CASA provided guarantee for the success of this capital increase. We've proven that it's perfectly okay for us if a large subsidiary like Amundi engages into an M&A transaction that is not financeable only with its cash position. Again, what is important is what we do, not how we finance it. Of course, once we have decided what we want to do, we must put in place a financing that is coherent with what the group is. We start with the operation itself.
Of course, you made reference to that. The key elements for us to identify and to tell if an operation is relevant is, of course, to make sure that we have the capacity to integrate and that we have the capacity to generate the type of profitability that we require for such an operation. Which among other elements is the capacity to reach a return on investment of at least 10% after three years, and mostly by cost synergies or true synergies, I would say.
Very clear. Thank you.
Sure.
Our next question comes from the line of Lorraine Quoirez from UBS. Your line is open. Please ask your question.
Hi, Jérôme.
Hello, Lorraine.
Thank you for taking my questions. I have a bit of follow-up questions as well on M&A. One would be, in the past, I think you clearly said that you did not want to buy an entity and have to deal with issues around non-performing loans. I was wondering if this is still the case. Then I have another question, which is perhaps a little bit more generic. I think at the beginning of this call, at least the Q&A session, you said that you run different types of models, obviously, through partnerships, where you distribute the products manufactured by the product factory, and also, you own effectively a distribution network. My question would be, do you think a business model whereby you don't own at all distribution network, but you only work with partnership, is a sustainable business model? Thank you.
Okay. Thank you. Well, what I have always said is that our business model was not to manage a portfolio of NPL. I have always said that there are some investors which are dedicated to this business. They do it very well. They generally generate high profits on that. It's not our business. I repeat the same thing. In any kind of operation, what is interesting us is not the capacity of making money through the management of an NPL portfolio, and we speak to that clearly. When it comes to partnership and to the capacity of developing business models that would rely only on distribution partnerships and not on the direct possession of distribution networks, well, it's already significantly the case. Because actually, the full universal banking model, the perfect one, is only present in France and in Italy.
When it comes to Spain, for example, you see that our insurance companies have engaged into partnerships in order to distribute their products without having the control of any distribution network. It's also the case for the consumer credit business. It's also the case for Amundi. Even for CACIB. Spain is a typical country in which we've managed, through partnership, to identify and operate different partnerships without having, in this country, a retail network and a direct customer base. It's really something that is perfectly coherent with what we do.
Thank you.
Thank you. Our next question come from the line of Giulia Aurora Miotto from Morgan Stanley. Your line is open. Please ask your question.
Yes. Hi, good afternoon, Jérôme.
Hello.
A couple of questions from me as well. One on cost delivery. As you mentioned in your presentation, that was very solid so far this year, I was wondering, is there anything more that you can do, or any new ways of doing business, especially thanks to digital channels, that can lead to further cost savings going forward? That would be my first question.
Just a couple of quick ones. Corporate Center, in particular, is there any guidance on the revenue line? It's quite volatile. Finally, you discussed already the impact of lockdown potentially on provision. If I remember well, in the past quarters, you also had some impact on the insurance side because you decided to do some voluntary, let's say, payment, even though you were not obliged, because you don't cover pandemic risk. I was wondering if this is something that you are planning to do again now? Thank you.
Well, let me start with the last question. We cannot rule out definitely things like that. We have no specific plans regarding such an operation for the time being. We've done a voluntary and very significant contribution to all our professional customers that were impacted by the lockdown in the first period of the year. It was absolutely voluntary, not linked to our policies. I think it was very well appreciated by the customers because of that. It's not a definitive, I would say, a feature that is now embedded in our contracts. Nothing is planned for the time being. Corporate centers, well, clearly it is, and it will remain rather volatile. What is important for the corporate center is the trend. Globally, the trend continues to be positively oriented towards a reduction of the structural cost.
In addition to that, we have some more volatile elements that play a role in the corporate center. We have some businesses which are outside the main business lines, and this year they are performing much less than last year. It's specifically the case for the private equity business that we have kept in this corporate center. We have also, as you know, and this is also significantly impacting the revenue line, we have also some accounting effects resulting from the elimination of intragroup debt issued by CASA and subscribed by Crédit Agricole and Amundi, which are not accounted the same way by CASA on the one hand and by the investors on the other hand. We have some elimination which play a role.
In most cases, there is a trend, which is, if I take this last example of accounting elimination of intragroup debt, the trend is that in average it should converge towards zero, but it creates volatility. What is important is really to acknowledge that all our efforts are leading to a progressive reduction in the cost of the corporate center. As far as the cost line is concerned, I'll start by saying that we are already below the target that we had initially set for 2022. Of course, every time we have the capacity to do better than the target, we do it. Please recognize that we have committed to a target of being below 60% in 2022, and that we are now significantly below this target. We will continue to work on the cost base.
We will take advantage where possible of all the digitization tools that are accessible. By the way, digitalization is not only, and is not necessarily leading to a reduction in cost, because we view digitalization as an additional tool, as an additional feature that we provide to our customers. It's not only, and it's not principally a way of reducing the cost base. We invest a lot. We have pooled several IT resources between the different business lines in order, in the medium term, to generate additional cost savings. This requires investment. The good news is that with the very low cost income ratio that we've managed to post already, we have the capacity to invest.
Thank you.
Thank you.
Our next question comes from the line of Jean Neuez from Goldman Sachs. Your line is open. Please ask your question.
Hi, good afternoon. My first question was, just a simple question on the French retail. I see that the commissions were very strong in comparison also to BNP who reported yesterday, particularly driven by securities management, and also the insurance business. There could be some more transactionality for securities management, but the one thing with regards to insurance, which were up 4% in the first quarter, 18% last quarter and 13% this quarter year-over-year, they don't correlate as well as they used to with the outstandings in life insurance that you disclose for the same dividends. I just wondered what was the driver there, and what you attribute the discount or the, if you want, the increase in distribution margin, if I can call it this, in that particular business line.
Secondly, with regards to LCL, the net interest margin's holding up okay. In fact, we see also from the aggregate data of Banque de France, that front book margin seems to be increasing. I just wanted to understand whether there was still any drag to come from interest rates or whether the commercial margins, which we can see at Banque de France, are a good indicator for the future of the margin in that division. My second question is also on capital ratios, but rather more at group level. Obviously the Caisses Régionale don't distribute much. The group capital ratio is now 17%. I hear you when you said that it's not because you have money that you all of a sudden start thinking of how to spend it. Nonetheless, that's a really high capital ratio.
In a sense, you could argue that it's not employed very productively. I just wanted to understand what's the outlook, because it's building up really fast at group level. For example, in the investment bank, you might want to, I don't know, originate more and distribute them to revenue seekers such as the Caisses Régionale and things like that. Just to try to understand how the reallocation of that capital could work.
Well, let me start with the second question, which is, of course, difficult and interesting, but also there is a simple way to answer it. Actually it is structural with the regional banks that they continue to build up their level of capital because they do not have the same cost of equity as CASA, for example. You know that the capital of the regional banks, the prudential capital that is generating this level of solvency, is mostly made of reserves that are accumulated, and that do not belong to the mutual shareholders. The mutual shareholders, they own a mutual share, they are entitled to the repayment of the nominal amount of their mutual share. They are entitled to a remuneration of this nominal amount. The reserves are accumulated without being allocable, I would say, to identify the owner.
It means that we don't have this necessity that CASA has, that whatever listed bank has, which is to remunerate all the prudential capital that is put at work. It's a comfort, definitely. It's very efficient in terms of generating, I would say, security and robustness within the group. It's also an element that plays a role in the global capital structure of the group, because all the capital that we managed to build with CET1 at group level is what we don't need to cover with AT1 or Tier two debt, or even TLAC debt when it comes to building the different capital ratios of the group. Paradoxically, it's a cheap way to build our capital ratios.
There's no need to identify investments that we could make in order to use this "excess of capital." When it comes to LCL, and to the fees that LCL has booked this quarter, you must keep in mind that insurance fees are not related only to life insurance activities. They are also related to non-life activities. Actually, the portfolio of non-life contracts at LCL is building up rapidly, because LCL has significantly accelerated in the equipment of its customers in non-life insurance policies. This is generating an accrued amount of fees going forward, with potentially a certain volatility which is linked to the level of risks within this portfolio, the sinistrality. Nevertheless, this is generating an increased amount of fees, as well as the fees generated by the life insurance policy. Net interest margin.
Well, everybody's focused only on home loans, which is not the only component of loans generating margin for LCL. It's true that for home loans, we have seen this quarter a narrowing, quite significant narrowing of the spread between the front book and the back book. Roughly, it is now around 30 bps, when it has been historically closer to 100 bps than around 50 bps to 60 bp s. 30 bps means that if things continue to evolve like they've been evolving in the last period of time, we may envisage a convergence of the yield of the loan of the front book and the back book probably around 2022. Which would be a good thing, because this would alleviate the very heavy weight that is penalizing the net interest margin of retail activities.
Okay. Thank you, Jérôme.
Thank you.
Thank you. Our next question comes from the line of Azzurra Guelfi from Citi.
Thank you. Hi, good afternoon. A couple of questions from me. One is on volume outlook for France. If I look at the latest ECB lending survey, seems that there is a bit of a slowdown of expectation from a very high base. Your lending, even excluding the state guarantee program, is still very solid. If you can give us some indication on outlook in various bits of the loan book. A couple of quick question on Italy. One is if you can give us the detail of the moratoria loans and how they are evolving there. The second one is just to come back to the M&A, but very quickly.
If I understood well, you said that you would only consider a deal that makes sense if it arise, and for a retail franchise, could only be interesting if include also the ability of cross-selling for your asset management, Amundi, or the insurance. Am I understanding it correctly what you mentioned? Thank you.
Thank you, Azzurra. Volumes in the French market. It's been performing well across the board. In loans to businesses, actually, we had a very sharp slowdown in the second quarter. What we've seen in the third quarter has been a catch-up after a situation where almost all our activity was made of state-guaranteed loans. There's a catch-up effect, but there's also a certain dynamic. Actually, when you analyze precisely the GDP growth in the third quarter, you see that actually investment from businesses contributed significantly to the GDP growth in the third quarter. There has been a catch-up not only in lending to businesses, but also in investment from businesses in the third quarter in France. What are the prospects?
It's very difficult to tell actually because, again, we are in a very uncertain and moving situation from a sanitary standpoint, and this is leading to some impacts on the rest of the activity, and this is definitely creating some wait-and-see attitude, especially when it comes to investing. To summarize, yes, there has been a very good dynamic in loan evolution in France. This has partially translated into also a very significant increase in the volume of money that is put on site deposits, both by households and by businesses, because at the same time, the spending of these liquidity lines has not been as fast as the granting of those liquidity lines. In Italy, we've granted around EUR 1.8 billion of state-guaranteed loans, which were more or less the same as in France. Not exactly, but more or less.
We've also provided around EUR 800 million of payment holidays, of moratoria. Those have been extended up to the end of this year or maybe January 2021. For the time being, we don't have the capacity to acknowledge how it's going to perform simply because we continue to be in the payment holiday period. M&A, I'm not going to repeat what I already said. Our business model is made of cross-selling and is made of making different business line working together. That's the only thing I want to say on that.
Our next question comes from the line of Guillaume Tiberghien. Your line is open. Please ask your question.
Yes, good morning. Good afternoon. I've got two questions. The first one, again, with regard to the AT1. I'm sorry, but I got a little bit confused. You say now we should expect more than EUR 400 million per year, which is what I had in mind before Q3. Is that now EUR 400 million per year or more below the line as well as another EUR 200 million per year in insurance? Is it the sum of the two?
No, no.
that is EUR 400?
No, rapidly on this question, it is going to be precise, EUR 405 million for the full year 2020 below the line, i.e., directly against equity, and around EUR 75 above the line, i.e., through P&L. The pace going forward for what is going to be accounted for on the minority interest line is going to remain around EUR 75 million a year, unless there is a new issuance or a repayment by Crédit Agricole Assurance. This is going to be the pace going forward, EUR 75 million above the line. As far as the AT1 issued by CASA are concerned, the EUR 405 this year, may be a little bit higher next year, but I was giving an indication of EUR 420, simply because actually we have increased the outstanding by issuing an additional AT1. It was in September, if I remember correctly. October.
Yeah, EUR 750 million.
Yeah, exactly. The EUR 750 million one. This is adding up a small amount of coupon, and EUR 420 will be with the full year effect of this new AT1. I don't want to provide any indication of any kind of what we could do going forward with all these outstanding AT1s.
Sure. Okay. Thank you. The second question, again, I'm sorry because these are big numbers. In the Corporate Center, I don't really understand the comment you made on TLTRO. Is it fair if I say I take Q3 revenues, and I consider that within that, you have accrued 50 basis points extra on the EUR 125 billion, or the CASA portion of the EUR 125 billion, and that this will materialize for four quarters and then stop?
Yes.
Okay, fine.
The question being, and I don't want to provide details on that, the exact proportion of what has been kept by CASA versus what has been lent by CASA to the different business lines. The reasoning is this one.
Okay, fine. The last question is about the international retail outside of Italy. Obviously, they suffer from lower rates and lower FX. Is there more headwinds to come from lower rates, or the current level is the new run rate? The follow-up question on international retail ex-Italy is that now the ROE of those businesses, despite higher cost of risk, is now approaching zero. The question arise now about would it not make sense eventually to get rid of those businesses in order to be a bit even purer in terms of business model?
Well, first, the run rate is now, unless there is additional moves in the interest rates locally, we are now at the run rate, so the minimum run rate, because the latest rate cuts took place in the second quarter. Definitely this level is the new normal. Before the effect of all the efforts made locally to increase the top line by improving the revenue mix, by generating additional commissions, and so on and so forth. Of course, we are not satisfied with this level of activity and this level of profitability.
Strategically, what you can see and maybe what you can acknowledge is that every time we think that within the scope of businesses that we manage, there is a business that doesn't make sense, that doesn't generate the minimum level of profitability that we want to post, and that is not strategic, we don't hesitate to dispose of it. For the time being, we've sold, in several transactions, our 31% in the capital of Banque Saudi Fransi. We've sold Bankoa. We've sold the Bulgarian activities. We are in the process of selling the Romanian activities. We are in the process of selling CACF Netherlands. We don't hesitate, when we deem it necessary to fine-tune our perimeter, in order to be more coherent and more strategically aligned.
Perfect. Thank you very much, Jérôme.
Thank you.
Our next question comes from the line of Flora Bocahut from Jefferies. Your line is open. Please ask your question.
Yes, good afternoon. The first question I wanted to ask you is regarding the Switch unwinding. Just to see if you would potentially consider unwinding also the other 50% that you have not committed to, if this is a possibility for the future. Going to Crédit Agricole Consumer Finance, where the revenue margin is rebounding this quarter. I think from the slide that you mentioned, a positive change in the product mix. Just if you could elaborate on how the product mix is changing there. The very last question is regarding the wealth management business, where the costs were significantly better this quarter. Just if you could elaborate on what was the driver and how sustainable that is. Thank you.
Yes. Let me start with the Switch. First, we still have two years to go, but during those two years, we must fulfill our commitment to unwind 50% of the Switch mechanism. There's another 15% of the total to go, which before it can take place, needs that we see the clawback mechanism work for the triggering of the end of June. Before any move, we must wait for the clawback mechanism to work. The first priority will be to take a look at the last 15%. The other 50%, five, zero, is definitely a possibility. We are not committed to any type of timetable, but it's definitely a possibility. Business mix in the consumer credit operations. Well, there's different moves.
There is a tendency, which has been triggered by regulation, leading to a permanent decrease in the proportion of revolving loans and a permanent increase in the proportion of amortizing loans. This is producing a series of different effects. The first effect is that it reduces a little bit the net margin that we generate, but going forward, it improves the cost of risk, by definition. There's a second move that is creating more or less the same effect, which is the fact that we have more and more loans that are granted on the basis of a dedicated investment, like a car, like some equipments for the house. Again, this is generally a little bit less rewarding in terms of margin, but better in terms of risk profile that we will acknowledge going forward.
It's a combination, and of course, we try and adjust permanently our offer in order, first, to suit to the needs of our customers, and second, to be as efficient as possible from a revenue cost of risk combination. We have, I would say, accompanied the pressure that we had felt on the margin in the last maybe two years by significant efforts to reduce the cost base in order to adjust our scope of business. I think that on these consumer credit issues, maybe I can give you a rendezvous because we intend to give a workshop, a dedicated workshop, on consumer credit activities like the ones we did few years ago on insurance and last year on CIB, and it may take place next December, probably on the eighth of December.
We'll have the occasion to provide much more clarity and details on the evolution of consumer credit activities.
Okay. On the wealth management cost, please.
The wealth management, excuse me, I've forgotten this one. Well, on the wealth management cost, it's true that, since one and a half year, we are working very, very hard in trying to improve the profitability of the wealth management activities. Actually, we've managed to decrease and to engage into a tendency to decrease the cost base of the business. In the first nine months last year, the cost base was close to EUR 560 million. This year it's about EUR 520 million. It's a significant decrease, and we continue our efforts in order to adapt to a context where definitely the revenues are a little bit harder to generate.
Thank you. Just a quick clarification on the NIM in CACF.
Did you also use the TLTRO III there, or did it benefit basically from lower funding costs? Interesting.
A little bit. Differently in the different activities, CACF in France, it has the status of a bank, so it's entitled to access to the TLTRO. It's also the case for FCA Bank. It's not the case for Agos, for example. It's not been the case everywhere.
Thank you.
Our next question comes from the line of Delphine Lee from JP Morgan. Your line is open, please ask your question.
Hi. Good afternoon, Jérôme. Just a couple follow-ups from me. First of all, on Italy, would you mind just giving us a little bit of an update on your thinking around Agos? I think your discussions about JV, just if you could give us a bit of color.
on what's going on there. More generally on partnerships, just trying to think about in Italy, where you think you still need to grow, or where you think you have room to grow in terms of the revenues of the business lines in Italy. A second question is more on capital and the usage of the excess capital. I think you mentioned Switch, but just trying to think, would you consider buybacks to redistribute some of the excess? Would you ever consider raising a little bit the payout ratio from the current 50% level? If you could share your thoughts around this. Thank you.
Okay. Agos, the situation is very clear. We own 61%, BPM owns 39%. We have an agreement through which they distribute Agos products in their network. There is a specific provision in the agreement that is giving them the right, but of course, the present environment is not necessarily the best one to do so. It gives them the right to trigger an IPO of Agos. Of course, nobody really wants today to trigger such an IPO in the present context. Discussions are around the idea of what we do with this provision. Do we extend its validity? What is the context in which we could contemplate extending the validity and so on and so forth.
It's rather technical, and it doesn't change anything on the fact that the distribution agreement is up and running and is covering now all the branches of BPM, which was not initially the case. Partnership in Italy or elsewhere, well, when we assess the strength of the group, we think that in several business lines, asset management, consumer credit, insurance, life and non-life, and potentially also leasing, factoring, custody. We are ranking among the top players in Europe. We have skills, we have very good products. We have a very recognized expertise. Every time we have the capacity of finding an access to a new customer base, if it's compatible with the other partnerships that we have, it's a good opportunity.
We are not saying, well, in Italy we need five additional market share percentage points in that business or this business. All the business lines, and actually it's not steered by Crédit Agricole SA itself. It's mostly driven by the capacity of the heads of each business line to identify new partners with whom it can work. Really, it's a matter of opportunity, but be sure that we are permanently trying to generate new partnerships, and in the last. This quarter alone, and this is on slide eight of the slideshow. We've been granted a license in China to build a new joint venture between Amundi and Bank of China, in which we are going to be the majority shareholder. We've concluded a partnership with Europ Assistance in France, Europ Assistance, which is in the scope of Generali.
We've been buying the remaining 25% stake in the capital of GNB Seguros that we hadn't before, with the consolidation of the distribution agreement with Banco Novo . Clearly, we are working permanently on trying to expand those partnerships. Capital. We are not going to talk about this question of "excess of capital" or undistributed dividend, before we have some clarity coming from the ECB. I think it's no use to think of all the theoretical possibilities. We'll see when we have a new framework, what we can do, what is relevant, what is coherent with our DNA, and we'll provide a clarity on that. Clearly, we have the capacity to pay a dividend, and CASA, in the long run, continues to position itself as being a dividend payer.
Great. Thank you very much.
Thank you.
Our next question comes from the line of Pierre Chedeville from CIC.
Yes. Good afternoon, Jérôme.
Yes.
One first question on page 41. You mentioned, in the nota bene, the sensitivity of the ECL, if you weight your unfavorable scenario by more than 10 points or something like that, whatever. I was wondering if you proceed like U.K. banks, for instance, which prefer to indicate what would be the deterioration of provisioning based on the central scenario weighted at 100%, in case, for instance, of a degradation of 100 basis points to the GDP. I wanted to know if you had made this type of exercise, which in my view, is more pertinent to feel exactly what is the risk of a degradation of the economy that this type of exercise.
Well, this idea that you can summarize all the bank's parameters into a big spreadsheet, and that you can try to assess what is going on and what is going to happen if you move a number in that cell or this cell, is, I think, a little bit of a fantasy. Excuse me to say so.
No, I do agree. I do agree with that. I am talking about the methodology because you do the same by saying.
Yes. We have to do the same because.
You exactly do the same. I was talking about the methodology of taking one scenario weighted at 100%.
Mm-hmm. Rather than
Rather than three scenario that I manipulate, I would say.
Well, at the end of the day, when you weight the different scenarios, you end up with, I would say, a synthetic scenario, which you can also, I would say, reverse engineer. You can say that I want to have that end game scenario, and I adjust the weight of the three base scenarios in order to generate the scenario I want to end up with. We can do those calculation. I don't know if it's going to improve significantly, the image that we are going to provide to the market. We are going to see what we can do in terms of going this route.
No, I was just doing this remark because I participate to a debate with Ernst & Young recently.
We have noticed that this exercise made by U.K. banks led to an increase by more than 60% of ECL in this type of exercise. While I see that for French banks, we only see a small increase in provision in case of this exercise. That was just my remark.
It's difficult to assess only the risk by looking at the provision flows on a single quarter or even on a full year. The starting point is the outstanding of provisions that you already have booked in your balance sheet. As far as the group is concerned, we have EUR 20 billion of provisions in our balance sheet, which already covers our NPL by 80% at group level, 70% at CASA level. It's above the average of our peers in the European space.
Okay. Another question, page 11.
You explained that one of your strengths is the fact that net interest income only represents 37% of your net banking income. That is due to the savings businesses, part of your savings businesses in your business model. It is also due to monetary policy and also due to the confinement consequences. My question would rather be, what would be, if you had a dream, the best contribution of net interest income in your business model?
Well-
You see what I mean?
Yeah, I see what you mean. I think that the situation we present for the first nine months of 2020 is not that different from the one we had for the full year 2019. It's quite stable, actually. What is true is that if you take a helicopter view, and if you look back on the last maybe 10 years, you will see a sharp decrease in the proportion of net interest income in the total of our revenues for two reasons. Because we've grown significantly, the non-interest margin generating activities, and because also on the retail banking activities, the net interest margin has been very much compressed going forward.
When we presented the medium-term plan one and a half year ago, we already said that net interest income was representing around one-third of our revenues and was supposed to reduce by two percentage points across the medium-term plan. It means that this is a feature that is already identified and actually, really, used in our business model since not only the lockdown period.
Okay. My last question relates to Europ Assistance.
Yes.
In your view, the change of the partnership was in the idea of improve a cost center or to improve a revenue center?
Well, it's not really a change of partner. It's a change of business model because when we were with the previous partner, we were a simple customer having a long-term contract, and the assistant was providing us the services of an assistant. We are now in a completely different situation where we are partner in the capital of the French operation of this assistant. It means that, of course, we have provided our business to this joint venture, but we have a joint venture with Europ Assistance. It's a different strategy, and actually, it illustrates exactly what we've been doing in the non-life insurance activities since we started, probably 20 years ago. We start by learning in being the customer of another insurer, more experienced than we can be, or a reinsurer, if necessary.
After a certain progression on the yield curve, we try as much as possible to be autonomous and to be able to operate ourselves the business or to engage into a joint venture through a partnership.
Chinese strategy.
Maybe Chinese strategy as well.
They won't use it with Amundi.
We are going to be the majority shareholder of the new operation that we are going to build with Bank of China in China.
Of course. Thank you very much.
Thank you, Pierre.
Our next question comes from the line of Anke Reingen from Royal Bank of Canada. Your line is open. Please ask your question.
Thank you very much for taking my question. The first is, sorry, just a follow-up question on the M&A. Could you please remind us of the financial criteria for deals in terms of EPS accretion and return on investments, and over what time frame? Then secondly, just coming back to the cost control. Clearly, there's been very good performance in terms of operating leverage and being continually positive surprise. As you say, you're already at your 2022 target. Can you maybe just talk about what has been, or where you have done better than you expected when you put up the plan? I'm not wanting to sound negative here, but is there a risk that 2020 benefited from less travel and entertainment, and then we could see a bump up maybe going into next year when things return to somewhat normal? Thank you very much.
Thank you. Well, in M&A, we've got different criteria, but the most important one is that we want any M&A operation to generate a 10% return on investment after three years, and to generate that return in a very secured manner, i.e., either by purely cost synergies or revenue synergies, which are credible enough, because you know that generally, in M&A transactions, we can be very ambitious on revenue synergies. This is generally more difficult to reach than the cost synergies, which are more accessible. This is clearly the main criteria that we would look at in any transaction of this kind. In terms of cost control, I think that what we've done well, and that what we will continue to do the same way, is again, to decentralize the responsibility of the evolution of the cost base across the business lines.
Because who knows better what is the relevant cost base at LCL than the CEO of LCL? He knows exactly where he's heading too, in terms of revenues. He knows exactly what he needs in terms of branch number evolution, in terms of IT development. He fine-tune far better than what CASA could do, the level of the cost base. This is exactly the way we want to continue to do things, i.e., to decentralize the responsibility, but also regularly to assess the evolution and to make sure that the improvement action plans are identified and are put in place. It's true that probably in the last six months, we've benefited from a reduction in certain expenses, especially travel and entertainment expenses, because of the COVID crisis. We have had also, at the same time, some additional costs linked to the COVID crisis, which are not negligible.
All in all, the net economy is probably real, but it's not so important. It is probably here to stay, at least in part, because I think that going forward, we will not have the same intensity in terms of travel and entertainment as the one we used to have before. Clearly, we might see a rebound in certain costs after the end of all this sanitary crisis, but we are not going to go back to the level where we were before.
Okay. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Kiri Vijayarajah from HSBC. Your line is open. Please ask your question.
Hello, team. Yes. Good afternoon, Jérôme. Yeah, overall, good performance CIB overall, but specifically, in structured finance, just wondered how the deal pipeline looked as you went into October, because seasonally, Q4 is usually a bit quieter in terms of CIB financing revenues. I'm wondering if we need to allow for a bit of a steeper falloff into fourth quarter this year. More broadly, as I look across all of your loan books, I wonder, have you told your loan officers to tighten lending criteria at all as we head into this second lockdown? I know one of your peers was stressing yesterday how this second lockdown is going to be very different to the first. Just kind of would be helpful to hear your views on that topic, please. Thanks.
Yeah. Well, for the CIB revenues going forward and the pipeline. The pipeline is correct, i.e., we've been significantly improving in the last years, our positioning towards our customers, which means that every time one of our clients wants to engage into an operation, a financing operation, bond issuance, whatever, we are more and more often one of the possible banks to be chosen to lead this operation. From this viewpoint, the pipeline is quite satisfactory. The moment when our clients are going to trigger the operation will depend on the circumstances, will depend on their needs, will depend on the evolution of the sanitary crisis, will depend probably on the way the American presidential election ends up, and so on and so forth. We depend very much on clients' decisions regarding the timetable of their operations.
Every time one of our clients wants to engage into an operation, the chances that we are chosen to lead the operation have increased in the last period of time. Did we strengthen our credit criteria? We cannot say so. What is for sure is that the present lockdown period is not the same as the previous one. That is for sure. In the first lockdown period in France, it was very simple. You had a few activities that were forbidden, like the restaurants, the cafes, the bars, and so on, and some retail shops. You had a few activities that were compulsory, and actually, banks belong to the essential activity category and had to keep their branches open. For the rest of the activity, which represent the biggest part of the French economy, the motto was, you work only if it's possible remotely.
This was definitely leading to a very sharp decrease in the level of activity. The motto is completely different, is you work, and every time it's possible to work remotely, you do it remotely. For the rest of the time, we know that all the businesses, all the factories, all the offices have put in place some sanitary measures, some sanitary protocols that make it possible to work on-site safely. This is why I believe that the effects of this second lockdown are going to be completely different on the global output and on the GDP evolution. Actually, it's already been estimated by some economists that say that it's going to be probably at least halved in terms of impact as compared to what it was for the first lockdown.
Great. Thanks, Jérôme.
Thank you.
No further questions, sir. Please continue.
Okay. Well, thanks to every one of you. I don't know if we are going to meet in December like was initially planned, but we're going to talk. Have a nice afternoon. Bye-bye.
Thank you. That does conclude today's conference. Thank you to everyone who's participated in today's call. You may now all disconnect.