Good day, and welcome to the Crédit Agricole second quarter and first half year 2018 results. Today's conference is being recorded. At this time, I would like to turn the conference over to Jérôme Grivet, Deputy General Manager and Group CFO. Please go ahead, sir.
Good morning or good afternoon to every one of you, and thank you in advance for attending this meeting on Friday, August the 3rd. It's very kind of you. Let me start with the first, I would say, the page number four of our presentation. I just want to highlight that we've just published this morning the highest quarterly underlying profit of Caza since the IPO. The story of this quarter is a story of profitability, of growth, and you are going to see that in every business line, the top line has been growing quite steadily. Of development of our activities, and again, we have been concluded some significant new partnership this quarter. Of efficiency, and you will see that we have had positive jaws effect across the board. Of further decline in the cost of risk, and of solvency, which is still at a very high level.
If I go now to page five of our documents, you will see that the net income group share, stated published net income group share of Crédit Agricole S.A. this quarter is at EUR 1.436 billion. It's up 6.5% as compared to the second quarter of 2017. For the first half of the year, it's close to EUR 2.3 billion, up 4.5% as compared to the first half of 2017. Obviously, the real performance is better assessed when we look at underlying figures, especially because last year we had had some significant positive one-offs during the second quarter, namely a significant reversal of the home purchase saving plan provision, and the capital gain on the sale of our participation in the capital of Eurazeo. So if we take a look at the underlying figures for Caza, the net profit is again close to EUR 1.4 billion this quarter.
Almost no one-offs this quarter, but the improvement is far more impressive, close to 20%. If we restate those figures in order to present figures at constant scope and ForEx, then the improvement is close to 24%. For the first half of the year, and if I take the underlying figure, it's up 6%, and underlying figure at constant scope and ForEx, plus 16%. For the group globally, net profit for the quarter is close to EUR 2.1 billion. For the first half, three and a half billion EUR, and the underlying figures are close to those figures, EUR 2.056 billion for the quarter, and EUR 3.4 billion for the first half of the year. Last point maybe on this slide, the CET1 ratio fully loaded for the group stands at 14.8%. It's up 16 basis points in the quarter, and for Caza, it stands at 11.4%.
Seemingly, it's stable, but actually there is a slight improvement of 5 basis points, which is not seen due to the rounding effect. On page six, maybe just two elements I would like to highlight. The first one is that if we analyze the underlying figures of the first half, we end up with a return on tangible equity that is slightly above 13%. If we again take into account the underlying cost income ratio, it's significantly down, close to 3 percentage points down, and it's a little bit below 58% this quarter. Just as a reminder, in the first quarter of 2016, it was a little bit above 70%. On page seven, just some highlights on what has been going on in the development of new product and the development of our digital offers in our network.
You know that we've been launching Eko within the network of the regional banks end of last year. Since that time, we managed to capture almost 50,000 new customers, out of which 80% were not previously customers, and it represents only 11%-12% of the new entries in relations of the regional bank. There is no cannibalization process. Digitalization rate of our services is improving, and the effective usage of all our digital and online devices is improving. On page eight, just a few highlights showing that behind the very good financial figures, we have also a very good level of activity. It's been the case in the retail banking activities with loan books up 9%-10%. It's been the case in the asset gathering and insurance businesses with outstandings up in all business lines.
It's been the case in the specialized financial services business division with strong activity across the board, and it's been especially the case in the large customers division with a very positive commercial momentum, both in the CIB and in the asset servicing businesses. Let me now drill a little bit down into the figures. On page 10, you have the traditional presentation for the quarter and for the first half of the year of the net income group share. What you can see is that, as I said, the net income group share for the second quarter is up close to 20% on an underlying basis. What is even more interesting is that this positive evolution is shared by all business lines, in different proportions of course, but shared by all business lines.
You will see that for all our activities, the net income group share is up on an underlying basis. For the first half of the year, it's up 5.9% and restated from the scope effect and the ForEx effect, it's actually up 16%. Revenues were very significantly up. On a stated basis, the top line is up close to 10% this quarter. On an underlying basis, it's up 11.5%, and restated from the scope and ForEx effect, it is still up more than 7%. Again, all business lines contributed to this improvement of the top line of Crédit Agricole S.A. What you can see is that it's more or less the same situation for the full first half of the year. As far as the cost base is concerned, figures are much lower.
On a stated basis for the quarter, the costs are up 6%, there is a positive jaws of four percentage points between the top line and the cost line. On an underlying basis, 7.5%. Again, almost four percentage points of positive jaws. Restated from the scope and ForEx effect, 1.9%, the positive jaws is more than five percentage points. You will find the same tendencies for the first half of the year globally. In this situation, obviously, the cost-income ratio is significantly down as I already stressed. Cost of risk is also low and further declining. For the perimeter of Crédit Agricole S.A., and for the last four quarters, the average of the cost of risk is 26 basis points. For the perimeter of the group globally, it's 18 basis points.
In both cases, it's significantly below the assumption of the medium-term plan, obviously. In both cases, it shows a very benign cost of risk. If we drill down a little bit on the different business lines of Crédit Agricole S.A., the cost of risk is also declining in all the significant business lines. It's more or less stable within the consumer credit business. It's further declining within the retail banking activities in Italy, 78 basis points on average on the last four quarters, but actually 58 basis points only on the last single quarter due to 2018. For LCL, it's remarkably stable, actually. For the financing activities of the CIB, it's very significantly down on a rolling average, one basis point. Actually, it's been a reversal of credit risk provision on this single quarter. Net reversal of a little bit above EUR 50 million.
On page 15, you have the traditional view of the breakdown of our underlying revenues and underlying profit by business lines. What you can see is that we continue to enjoy a very good level of diversification, which is a very good asset in terms of resilience of our profitability. I will now go on the presentation business line by business line, starting with the asset gathering activity. In the asset gathering activities, as I already said, assets under management are up in all business lines. It's been the case for the asset management business.
You know that Amundi published its results yesterday, you may have seen that after a very good first quarter in terms of new inflows, the second quarter was obviously a little bit weaker, but with a positive outflow and a very good quality of this inflow, excuse me, and a very good quality of these inflows, a slight outflow in the money market funds and a significant level of inflows in the long-term assets. Life insurance is up EUR 3 billion, Wealth management is up EUR 4 billion. If we take a closer look at the insurance activities, the business was very significantly well-oriented, both in life and non-life activities. In non-life activities, P&C and protection premium income is up close to 8% quarter on quarter, Q2 on Q2.
In savings and retirement, we not only have a good level of net new inflows, but we also manage to keep and even to improve the breakdown of these net new inflows between unit link and euro-denominated policies. In terms of financial figures, the revenues are significantly up 7.5%. The costs are down. The income before tax is significantly up, plus 15% on the quarter. The slight decrease in the net income group share is due only to the tax effect. Actually, if we restate the figure of 2017 from the capital gain that we made with the sale of a reinsurance business in Luxembourg, we would see a net income group share slightly up for the quarter and for the first half of the year. Nothing much to mention in terms of performance for this business for the quarter.
Just let me mention that Crédit Agricole Assurances concluded in the last days a significant partnership with Creval, which is an Italian retail bank. It's a 15-year distribution agreement for Crédit Agricole Vita, our life insurance company in Italy, in order to distribute on an exclusive basis its product through the Creval network. This partnership goes along with the acquisition of the in-house Creval insurance broker, also with the acquisition by Crédit Agricole Assurances of a stake of 5% in the capital of Creval. For the asset management, I will be very swift because, again, Amundi published its results yesterday. What you can see is that obviously, revenues are significantly up. Gross operating income is up. The net profit is very significantly up.
This is obviously due to the integration of Pioneer. What is interesting is that the cost-income ratio is at 53%, close to the level where it was before the acquisition of Pioneer, which means that the materialization of the cost synergies is on its way. Retail banking activities in France, LCL, good level of activity. Customer savings are up 2%. Actually, it's a stability for the off-balance sheet customer savings, plus 3.7% for the on-balance sheet customer deposits. Loan outstandings are up 4.6% with a skew with a smaller increase for home loans and a sharper increase for corporate and professional loans. In terms of P&L, revenues are up 2%. Within these revenues, underlying revenues, what we can see is that fees are significantly up 3%. We feel a normalization of the level of the net interest margin.
Costs are again down 2.6%. Very positive jaws effect. Gross operating income is up 11%. Net income group share up 6%. It's been a very good quarter for LCL. Italy, again, a good quarter for our retail banking activities in Italy. The integration of the three regional banks that we bought end of last year is on its way. San Miniato has already been merged within CariParma in June, Cesena in July. Rimini will be merged in September. The process of realizing the cost synergies is starting well. Indeed, the contribution of those three banks to the net profit generated by our Italian retail banking activities is now positive as soon as this second quarter 2018, a few million EUR. It's already positive. It's a little bit swifter than what we initially expected.
Maybe a last point, the quality of the loan portfolio is further improving. We have had a reduction in the level of NPLs. It's now at 10.3%, down from 11.5% at end of March. The coverage ratio is improving slightly. International retail banking activities excluding Italy, maybe just to go directly to the conclusion, the net income group share is up 11% in EUR, which means that we are now in a position where the improvement that we've been seeing in the last two to three years in local currencies, is no longer offset by some ForEx effects. It's a positive situation, and it's now a significant contribution to our profitability. Specialized Financial Services, good level of activity, both for the consumer credit business and for the leasing and factoring business. For the consumer credit business, the activity is good across the board.
It's been especially the case for the partnership between CACF and our retail networks. Also it's been the case for the car financing joint ventures. CACF entered into new partnerships this quarter, with Aston Martin in the field of car financing, but maybe more significantly with Bankia in order to develop a new country in the scope of activities of CACF, and in order to develop pan-European business with some significant partners. In the leasing and factoring business, again, the momentum was good, both in leasing and in factoring. All in all, this division posted a very good level of profitability with revenues slightly up, costs down, significantly down, and the net profits for this division up 15% on the quarter. Large Customers Division, very good quarter for CA-CIB and for CACEIS.
We have had a good momentum in terms of revenues, especially if we restate it from the ForEx effect. In the capital market division and investment banking division, revenues are up 3.2% outside the ForEx effect. If we restate from the ForEx effect, it's even up 7%, 7.1% to be precise. It's been driven by almost all activities in this division. The financing businesses were very successful this quarter, with revenues up 13.2% on a gross basis and 17.3% restated from the ForEx effect. This goes along obviously with an increase in the level of RWAs, but the good news is that the ratio between NBI and RWAs improved this quarter as compared to both the first quarter of this year and the second quarter of 2017.
All in all, the net profit is significantly up, due not only to the upper part of the GOI, Gross Operating Income, +6%, but also due to the situation of the cost of risk. I already mentioned the fact that CA-CIB had a reversal of loan loss provisions this quarter. The net profit is up 24% for the Large Customers Division. It's 22% for CA-CIB and +43% for the Asset Servicing Division, CACEIS. The Corporate Center contributed also to the good level of profitability of Crédit Agricole S.A. this quarter, with a net loss which was a little bit below EUR 100 million.
It is both the result of a structural improvement that we are building quarter after quarter, both on the revenue and cost sides. Also, it is due to some non-recurring effect in connection with the fact that we received some dividends and some positive revenues from our private equity portfolio this quarter. Nevertheless, we are on track in order to reach the EUR 700 million that we are targeting for 2019. Let me go now to the regional banks, which showed also a very good level of activity this quarter, both from a lending viewpoint, from a deposit collecting viewpoint, but also in the field of gaining new customers, plus 66 individual customers over the first five months of the year. In terms of additional services, the sale of premium cards is up close to 10% June-on-June.
The regional banks continued to increase their portfolio of P&C insurance policies. In terms of revenues, it is interesting to note that for the first quarter, since probably several quarters, revenues are slightly up within the regional banks, plus 0.5%. The cost of risk is at a low level. Compared to the second quarter of 2017, it is significantly up because last year in the second quarter, the regional bank posted a reversal of loan loss provisions. The comparison is not fully relevant. Let me go now to the solvency situation, starting with Crédit Agricole S.A. As I said, we are apparently stable in terms of CET1 ratio, from 11.4% end of March to 11.4% end of June. Actually, it is up five basis points. It results from a stated profit, which contributes to 47 basis points of solvency. The distribution is obviously consuming 25 basis points out of this 47.
Distribution both for dividends and 81 coupons. The OCI reserves were slightly up four basis points of CET1 ratio. The other elements, mainly obviously the organic growth of RWAs, is translating into a 22 basis points of CET1 ratio consumption. Actually, it is in connection with the increase in risk-weighted assets. It is up 2.7% on this quarter, from EUR 299 billion-EUR 307 billion. The tier one ratio, total capital ratio, and leverage ratio are still at very good levels. On page 29, we can see that this increase in the level of RWAs was mainly due to CA-CIB, the large customers division, plus EUR 5.5 billion. It is in connection both with the ForEx effect, EUR 1.6 billion, but also from a good level of activity.
Again, this good level of activity translated into an increase in NBI, which was higher than the increase in RWAs, so it is a very positive situation. In the retail banking activities, it is up close to EUR 1 billion. It is in connection with the development of the lending activities of LCL, and in the asset gathering activities, it is the integration of Banca Leonardo, which is leading to this increase. As far as the group is concerned in terms of solvency, the fully loaded CET1 ratio is up actually 16 basis points. Again, the rounding effect is showing a translation from 14.6%-14.8%. Retained earnings represented 31 basis points of capital, OCI reserves two basis points, organic growth minus 19 basis points, and other and technical effects plus three basis points. In terms of funding, nothing much to say. The funding program is well on its way, both at group and at CA S.A. level.
At group level, we managed to raise EUR 18.5 billion at the end of June. At Caza level, it is EUR 8.2 billion at end of June, but actually EUR 10.1 billion at end of July, it is 84% of the EUR 12 billion medium to long-term market funding program of Caza that has been completed. Liquidity and funding, nothing much to say. We still have a very positive liquidity situation, which is not a surprise in this environment. I think I can take now your questions. Thank you very much. If you have some, obviously.
If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. Again, it is star one to ask a question. We will now take our first question from Jon Peace from Credit Suisse. Please go ahead. Your line is open.
Yeah, thank you. Good afternoon. First question is just on the insurance business. You built again the policyholder surplus reserves, and they now stand, it seems, substantially ahead of your competitors. I think you said in the past that that reserve build was largely over. Should we expect to see more of the insurance profits drop to the bottom line going forward, or are you going to continue to prudently build it? The second question is just what we might expect in terms of risk-weighted asset evolution going forward. As some of these jumbo deals completed, could risk-weighted assets come down again into the second half of the year? Just what should we expect going forward? Thank you.
Thank you for your two questions, Jon. The first one, you know that as far as the life insurance business is concerned, the policy is clearly to wait until the end of the year to precisely assess the level of provision that we want to keep. You know that we are actually provisioning on an interim quarter. It is only an estimation of what we should do by the end of the year. The profit-sharing rate is finalized only at the end of the year. What I can tell you is that we have been, this quarter, cautious from three viewpoints. We have been cautious in terms of, I would say, generating financial revenues.
Actually, the level of unrealized capital gain, not on the fixed income asset, because obviously on the fixed income asset, we generally don't try to capture the unrealized capital gain, but we just hold the bonds up to their maturity. We don't pay too much attention on the unrealized capital gains on the fixed income assets. On the diversification assets, what I can tell you is that the unrealized capital gains are significantly higher at the end of June 2018 than what they were at the end of June 2017. We've been cautious in terms of, I would say, crystallizing unrealized capital gains. We've been cautious in terms of provisioning the future profit-sharing rate. I will not disclose the level at which we have provisioned the fixed profit-sharing rate, but what I can tell you is that we've been quite cautious.
We've been cautious in terms of increasing further a little bit the provision that is put aside for the future. This is going to be reassessed by the end of the year, when we are going to finalize the level of profit-sharing that we are willing to pay to the customer, and when we are going to finalize the level of provision that we want to keep. As every year, I think the best is to wait up to the last quarter in order to really assess the full profitability of the business. Again, we've been cautious. In terms of RWA evolution, I think what we are going to be very much looking at is the capacity of the incremental RWA to generate a good level of revenues and of profitability.
Obviously, some of the so-called jumbo deals that CA-CIB concluded are generating, end of June, some significant volumes of RWAs that are not here to stay. They are going to be offloaded as soon as the market operations are going to take place in the coming months. I don't know exactly when, but part of the increase is in connection with these jumbo deals and is going to be offloaded somehow. Nevertheless, clearly there is a potential for a decrease. There is also, if we have the opportunity of generating well-remunerated RWAs, we have the capacity, at least, I would say, to keep more or less at this level, the RWA allocation to CA-CIB. Of course, the increase is not going to be EUR 5 million a quarter in the coming quarters. That's for sure.
We could be comfortable with the present level, and with the replacement of the RWAs connected with these jumbo deals by some more, I would say, recurring RWAs, if they generate a sufficient level of NBI.
Okay, great. Thank you.
Sure.
Our next question comes from Delphine Lee from JP Morgan. Please go ahead. Your line is open.
Hello, Delphine.
Yes, sorry. Thank you for taking my questions. I just wanted to ask two questions. First of all, on French retail, given the good performance of the quarter, do you see upside to your guidance in terms of flat revenue growth for the full year? Is there anything you can tell us about recent trends, and how the quarter is going, in terms of margins? Would be quite helpful. My second question is around capital. Just wondering if there's the timing of the regulatory impact that you would expect, I think, on TRIM. Just to understand a little bit of the capital progression that we can see for the group in the next few quarters. Thank you.
Thank you. For LCL, I think we are seeing positively the evolution of LCL this quarter. That's obvious. I don't want to change my guidance of stability because we are in a situation where, obviously, we are close to the point where the volume effect is offsetting the pricing effect. That's the good news. The bad news, it's a market indicator, which is the fact that on the French retail market, the pricing for new home loans is again down in the last three, four months. Obviously, this is not, I would say, inducing me to change my guidance, because I don't know exactly up to what point the competition is going to continue to go. Clearly, it's way too early to change our guidance.
Clearly, I want to keep this idea that we are targeting for the full year 2018, a level of revenues for LCL, which would be close to four times the level that we've reached in the fourth quarter of 2017. In terms of capital, maybe just an additional comment on the capital situation of Crédit Agricole S.A. I already stressed that actually we increased by five basis points our level of capital this quarter. We have already another element which is going to have a positive effect on our capital, which is the conclusion, the closing of the capital increase reserved to the employees. That was successfully concluded, I think it was yesterday, with EUR 135 million collected. It's going to generate another four basis points of capital. Pro forma, actually, this capital increase, we would be already at 11.5%. Just to mention this point.
Going forward, we know that we have the TRIM exercises, and I really stress the exercises because there are lots of TRIM reviews going on in different areas of the group. We know that every time the ECB is taking a look at a model, the biggest chance is that it ends up with an increased requirement. We are ready to take that into account going forward, but we have no precise calendar and no precise, I would say, quantification. You may remember that we've been saying since the launching of the medium-term plan that we were ready to allocate up to 70 basis points to those regulatory strengthening, within which I was including the TRIM reviews. We consumed probably 35 basis points between IFRS 9 and the deduction of the commitments to pay to the Single Resolution Fund.
We still have 35 basis points without jeopardizing our capital trajectory to accommodate these TRIM exercises. You know that we are in a world of moving pieces, I think we have to be able to be agile from this viewpoint.
Great. Thank you very much, Jérôme.
Thank you.
Our next question comes from Flora Bocahut from UBS. Please go ahead. Your line is open.
Hi, Jérôme. Just a few questions for me. The first one is on the new partnership with Bankia. Can you give a little bit more color and tell us how this will be accounted in the P&L? I'm guessing the loans won't be consolidated on two Caza balance sheets, but just to be sure. Second thing is on the P&C performance of the regional bank. Do you expect actually an acceleration going forward? I mean, 2.1% is not bad, but I'm guessing it could be even better. Obviously, it's not in the scope of Caza, but it's still relevant for the insurance business. The last thing is regarding acquisitions and potentially Poland. Is that still something that you could be contemplating extending your presence in the country? Actually, just trying to understand how you see acquisitions in comparison to reimbursing the switch mechanism, for example. Thank you.
Thank you. Bankia. Day one, there is no balance sheet, there is no volume of loans. We are going to progressively build the balance sheet through the development of two different activities. The first one is to help Bankia to develop the consumer credit business on its own customer base. The second one is to use this basis, this platform, in order to develop direct consumer credit business, either through existing partnerships with retailers across Europe. We are then going to be able to expand our offer to a new country or also to maybe open some new partnerships within Spain, thanks to the development of this platform. Day one, no balance sheet, and progressively, of course, we are going to build the balance sheet. It is going to be very progressive.
P&C, I think that an increase of more than 2% of the size of the portfolio, it's quite significant because as you know, you have to add up to this, I would say, volume effect, the value effect, which is the regular increase in the pricing of P&C policies. It means that actually for the regional banks, this is going to lead to probably an increase closer to 4% or to 5% of the fees that they get from this business. This is also contributing to the 8% increase in premium income for Crédit Agricole Assurances. An acceleration would be welcome, I think that the stability of the growth at this level for the coming years would be already very positive, both for Crédit Agricole S.A. and its insurance subsidiary and for the regional banks.
What is true is that in the last period of time, LCL is a little bit catching up in the development of the distribution of P&C contracts. Obviously, it was lagging far behind the regional banks, because it's been a late starter in the distribution of P&C policies, and it's now accelerating. In terms of M&A, first, I'm not going to comment market rumors about the sale of certain banks in Poland and our potential interest for those banks. It's a purely market rumor, we don't comment. The only thing that we have said regarding Poland is that we were not going to sell our own activities, which are not enough profitable. I already stressed it in one of the previous quarters, it's improving, we have a plan to continue to improve it.
More globally on M&A, I think the issue is not to have to choose between M&A and the switch. We have been able to conclude some significant and very positive M&A transactions without actually requiring a capital increase, because we have been financing almost all of our acquisitions with disposals. The idea is clearly to be a little bit more agile in terms of the management of our portfolio of activities in order to get rid of activities which are either not profitable enough or not core to our strategy, to be able to generate purchase capacities in order to make acquisitions in some specific business line. Since the beginning of the medium-term plan, actually, it was asset management, private banking, and Italy. It's been the areas in which we've been making some acquisitions.
I'm not going to comment potential additional M&A transactions, but clearly you have to bear in mind that the type of M&A transaction that we could have in mind is going to remain coherent with what we've been doing in the last two years.
Thank you.
Okay. Thank you.
The next question comes from Maxime Levi from Jefferies. Please go ahead. Your line is open.
Good afternoon, everyone. First question will be regarding LCL. I'm quite surprised by the dynamic on the corporate plus 10. Can you give us a little bit of feeling of which sector are you focusing on? Is it a catch-up effect? The second question will be regarding the acquisition of the three Italian banks. We are seeing that the cost income ratio is significantly improving month after month. When do you expect to have them back to the level of Cariparma? Thank you.
Thank you, Max. For LCL, you're right. There is within this significant growth in terms of corporate and professional lending, there is a catch-up effect, because in the previous years, probably, the allocation of growth capacity to LCL was a little bit tight. LCL, which I would say in its DNA, has a very long experience and know-how in terms of being a corporate bank, was a little bit presented or precluded from continuing its business in this sector. We consider that it's a good element and a good complement to the development of LCL to address this segment of customers too. I think that the first element in this performance is simply the fact that we are allocating some means to LCL in order to develop.
The second element is that the market globally is quite buoyant in terms of credit demand coming from corporates and SMEs. Actually, what you can see is that we have more or less the same figure for the regional banks. It's more a market phenomenon than a phenomenon purely linked to LCL. The third point is that, within the development of these loans, actually what we see is that it's massively equipment loans and almost no treasury loans. It means that it's really in connection with the will of the corporates and SMEs in France to rebuild their capacities of production. It's, I would say, a sound credit demand. Italian banks, it's true that we are getting faster than expected in terms of reducing the cost base. Actually, we've made a decision to accelerate the merger of the legal entities within Cariparma.
This is clearly helping to generate the cost synergies. As I mentioned, the San Miniato regional bank was already merged in June, Cesena in July, Rimini is scheduled for September. It means that actually we are going to be able to work as a single bank in the fourth quarter of this year. The further step of the improvement is going to come from the progressive plugging of all our product factories on these new branches. This is probably going to take a few more quarters because it's quite easy, and it can be made quite rapidly to reduce the number of staff, to migrate the operations on a single platform, and to reduce the number of overhead and the amount of overhead.
It's going to take a little bit more time to develop the sale of the insurance products, consumer credit products, and asset management products. Clearly, I think that we will have to wait until probably end of 2019 or beginning of 2020 to be able to see a more homogeneous, I would say, Cariparma. Maybe one last element I can mention is that, since Cariparma has taken the steering wheel within those three banks, it has been developing significantly the home loan origination, plus 60% between the first and the second quarter of this year.
Okay. Many thanks.
Thank you.
Have a good break.
Thank you.
The next question comes from Guillaume Tiberghien from Exane. Please go ahead. Your line is open.
Yes, good afternoon. The only question I have relates to the cost in consumer credit. I think it's the lowest level we've had for a long period of time. I was wondering whether there were any one-offs, or if I missed them, and whether we should expect such a level to be sustainable going forward, or whether we should grow from here. Thank you.
I think it's a good basis in terms of cost base. There is no one-off that would be offset in the coming quarter. It's the result of some significant effort in terms of trying to improve the global efficiency. Obviously, you may remember that in the beginning of the medium-term plan, we have given to CACF the capacity to significantly improve its IT investments. It's now paying off. Probably, if the situation continues to evolve positively, we are going to be able to authorize CACF to continue its developments. For example, this is going to be the case with Bankia, because I said that Bankia is not going to consume capital day one in connection with a portfolio of loans, because there is no loan day one.
We will require some investments in order to develop this JV as soon as it's completed, as soon as the deal is closed.
Okay, thank you very much.
Thank you.
The next question comes from Flora Bocahut from Deutsche Bank. Please go ahead, your line is open.
Good afternoon. I have two questions. The first is regarding what you announced recently with Creval in Italy. Just if you could elaborate around your strategy there, why you chose to take a minority stake, in which case could this minority stake be increased? More generally, you also mentioned the potential for more partnerships, what do you mean? The second question is regarding the Euribor litigation. There was a press article earlier this week saying that for the banks that chose not to settle back in 2013 with the European Commission, they could potentially face a higher cost than had initially been expected. What can you tell us around this risk and do you share that view and how much have you provisioned already for this specific risk?
If I may just follow up on two things you said to make sure I understood correctly. When you mentioned that for the PPE accrual in insurance, you need to reassess at the end of the year, do you mean you could add further to this provision in Q4 or do you mean maybe you can write some back in Q4? Regarding LCL, when you mentioned the guidance is based on the Q4 revenues, there was a one-off in Q4 revenues in LCL because of the Chèque Image fine. Is it reported or adjusted numbers we need to consider for the guidance? Thank you.
Let me start with Creval. What we have concluded with Creval, what Crédit Agricole Assurances has concluded with Creval is a partnership in order to distribute life insurance policies. This goes along first with the acquisition of the in-house broker, because this is going to enable Crédit Agricole Assurances to capture the fees connected to the run-off of the actual portfolio of life insurance policies that have been distributed in the past to Creval consumers. There is a EUR 70 million to EUR 80 million cost of this acquisition, which is only the net present value of the fees that are going to be perceived by CAA in the coming years. Really the bulk of the operation is a distribution partnership. This is where there is the innovation in terms of strategy.
Crédit Agricole Assurances has now the will and, of course, with the support of Crédit Agricole S.A., to develop, especially in Italy, its distribution capacity beyond the network of Cariparma in order to benefit from the size effect that is going to go along with this enlargement of its distribution capacity. Why the 5% capital stake? Clearly, considering the importance of this partnership for Crédit Agricole Assurances on the one hand, and for Creval on the other hand, because as you know, Creval has a small bank with a relatively small market cap. Granting for 15 years a distribution agreement to a single partner is a major decision for them. The idea was, I would say, to secure this partnership with this capital stake that has been taken not by Crédit Agricole S.A., but by Crédit Agricole Assurances.
It's clearly connected, and the package is threefold: the distribution agreement, the acquisition of the broker, and the acquisition of the 5% stake. What we said is that if going forward, we have the capacity to identify further partnership that we could develop with Creval, for example, the P&C insurance business, for example, the asset management distribution business, for example, consumer credit distribution business, then we could go up to 10% in order to continue to secure those new partnerships. This is exactly what we said. The stake in the capital of Creval must not be seen as an investment from Crédit Agricole S.A., but as a feature to secure industrial and commercial partnerships. Euribor, nothing new from our viewpoint this quarter. No move on the provisions, and no fear of worsening of our situation with the European Commission.
We don't feel concerned at all by the news that you are reporting. On the PPE, you're perfectly right. I meant that up to the end of the year, we have the capacity either to complement or to reduce the level of PPE. It's only once a year that the level is settled and that the profit sharing is attributed to the policyholders. If you take the history of the last four or six or 10 quarters in terms of PPE evolution, you would see some ups and downs. The trend was globally upwards, clearly. On a quarterly basis, you may see some volatility. Volatility is not the right word, but some moves which can be either upwards or downwards. It's clearly a tool that helps us adjust and fine-tune, I would say, the financial management of the company. Okay?
Yeah. Thank you. Just on LCL, you need to clarify the guidance.
On LCL, the guidance is clearly in connection with the underlying revenues of LCL in the fourth quarter of 2017. I don't remember actually if the Chèque Image, if it was in NBI or in another line. It was in NBI, but it's excluding this fine, obviously.
Perfect. Thank you.
Thank you.
The next question comes from Kiri Vijayarajah from HSBC. Please go ahead. Your line is open.
Yes. Good afternoon, Jérôme. Just on the consumer finance, and the risk profile there, as you launch into new markets like Spain, does the normalized kind of cost of risk you think about drift up over the medium term as you kind of diversify away from France, and the core market that you know well? Just very quickly, could you just remind us how much capital you've got tied up in BSF in Saudi at the moment, please? Thank you.
For the consumer credit business, of course, obviously, the parameters of the activity are different from one country to another. We don't have exactly the same parameters between France and Italy, just to mention two very important countries for us. Clearly, our expertise is to know exactly how to monitor the margin that we take on the customers in connection with the level of the cost of risk. Obviously, as we are going to open a new country, we will have progressively to fine-tune our understanding of the parameters in this new country. CACF is already active in probably 10 or 12 European countries, it has clearly the capacity of being able to react very rapidly in order to either increase or decrease the pricing of the new loans to adjust the potential cost of risk.
I don't think this is going to change massively the average cost of risk of CACF going forward, considering the fact that the size of the loan book of CACF is very significant and the expectations in terms of growing the loan book, thanks to the Bankia partnerships, is not going to represent a massive modification of the breakdown of the portfolio. Clearly, this is going to be a new country in which the parameters are going to be different than what they are now in the countries where we stand. Maybe one last point on that is that this is the idea of starting with a well-known and renowned partner, which is Bankia.
Bankia knows the market, knows the quality of the credit in Spain, this is going to be a joint venture, they are going to be interested in managing the cost of risk as we are going to be. BSF, the value of the stake that we have is roughly depending on the value of the stock on the Saudi market. It's between EUR 1.2 billion, EUR 1.3 billion, EUR 1.4 billion. It's classified in HTCS, it can contribute positively or negatively to the OCI reserves on a quarterly basis. In terms of capital, it's a listed stock, you can compute the capital consumption. You have the way the [franchisees] are allocated, but this is globally the figure.
Okay. Thank you. Great.
Our next question comes from Anke Reingen from Royal Bank of Canada. Please go ahead. Your line is open.
Yeah, thank you very much. Two questions. The first is on your operating leverage, thank you very much for giving us the adjusted numbers there. I just wonder, is that something you would caution us to, is why this sort of couldn't continue the same rate as we have seen before, do you feel maybe tempted, given it's going so well, to invest a bit more in marketing and so on? Secondly, on your faster growth in SME and corporate lending and French retail banking. Is this something that should impact the margin positively going forward, but also potentially come with a slightly higher cost of risk? Thank you very much.
Excuse me. Your second question was regarding which business?
French retail banking the faster growth.
In LCL? LCL?
Yes, please.
In the French retail banking, let me start with this one. In the French retail banking business, it is the case for LCL and for the regional banks. We see absolutely no sign of deterioration of the quality of risks. Naturally, what we have seen is a level of cost of risk, which is very stable and very low regarding all the past years that we have known on this market. I think this is the result of partly the decrease in the level of interest rates, because the decrease in interest rate is putting some pressure on our net interest margin, but it is also improving the creditworthiness of our counterparts. Clearly, we have at least a partial compensation for the pressure of the NII through the level of the cost of risk.
I think that the good momentum that we have on the development of the credit is not actually embarking additional cost of risk. Your first question was regarding investments, be it in IT and in marketing, if I understand correctly.
Yeah. Since the operating leverage is obviously very good, I just wonder if there's anything we should consider that maybe second half, we should more investments coming in. Actually, do you feel tempted, given your operating leverage is so good to invest more as well? Thank you.
I think we have the capacity to continue to be very efficient from a cost viewpoint. For example, in the first half of the year for LCL, we have been reducing the cost base by something like 2.5% for the first half of the year. Within this 2.5% decrease, there has been a significant increase in the marketing expenses. It means that clearly we are reducing the level of running costs, but we are not compressing the investment capacity. I'm not pretending that we are going to be able to continue to reduce the cost base by 2.5% year on year on year, but we are not going to suddenly increase the cost base by 2.5% simply because we have had good quarters in terms of revenues.
Thank you.
Thank you.
Our next question comes from Tarik El Mejjad from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Hi. Good afternoon. Just only one question from my side. It will be on Italy. This is your second home market and, given the latest acquisitions, clearly you seem very committed. Can you please give us just some view on what's your outlook in terms of macro over there, and more importantly, from the economic environment and corporate growth, given the uncertainty about implementing the reforms as fast as initially expected. Has anything changed in your view on how the country and the macro will evolve? Just some view on that. Thank you.
Well, clearly our views have not changed regarding Italy. We see it as a country where, especially in the northern part of the country, the economy is quite dynamic. There is a very important number of SMEs and small corporates, I would say, that are dynamic, exporting, investing, and that are good customers for us. Of course, we have to be cautious, because this is probably a country where the average level of risk doesn't have the same meaning as in France, for example. We have to be very cautious in the choice of our counterparts. Globally, the economy grew by more than 1.5% last year. If you take into account the fact that probably the southern part of Italy was closer to zero, it means that the dynamic in the northern part of Italy was probably even higher than in France.
We are positive on this market. Obviously, there is a quite complex political situation, we feel that at the end of the day, there is going to be a path in order to accommodate the present situation, we have no specific fears about the medium and long-term outlook in this country.
Thank you.
The next question comes from Jacques-Henri Gaulard from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Good afternoon, gentlemen. Two questions. First of all, I'm looking at your underlying H118 at EUR 2.2 billion. Looks to me that you could easily make your higher than EUR 4.2 billion net profit. Obviously, it's a question we had last year already, but it's interesting to get your view about that, whether you could be one year early. The second question, I think for you, Jérôme, is more like the company has changed significantly. Okay? You were a bit of a bank with a lot of holding company capabilities in a way. You've completely reshuffled, changed the assets in depth. How does it change the way you're steering the company financially? Have you noticed quite a bit of change, or has your job changed, actually in a way? Thank you.
We could spend the rest of the afternoon on the second question, Jacques.
No. No.
Let me start with the first one. Obviously, we have had a good start this year. If I remember correctly, three months ago, you were not as, I would say, positive on our outlook for the full year. May I just take argument from your own preciousness three months ago, not to make any prediction for the rest of the year. We are on track. We are quite satisfied with what we did in the first half of this year, and we are now working on the second half. This is going to be my answer. For the financial management of the group, actually, yes, the perimeter has significantly changed.
Yes, we are now in a situation where 95% of what is accounted for in our P&L is controlled businesses in which we have the steering wheel. Yes, this is leading to a situation where, when I'm talking with the CFOs of the business line, we are talking about very, I would say, pragmatic and concrete issues which enables us to, I would say, monitor very closely all the parameters, the financial parameters of the group, which is, for example making it possible for us to adjust the allocation of RWA to a business line or another one if we feel that there is a capacity to generate a good level of NBI with those new RWAs. It's, I think, a situation where it's more demanding, but it's more agile and more efficient.
Thank you.
Thank you.
The next question comes from Jean-Louis from Goldman Sachs. Please go ahead. Your line is open.
Hi there. A follow-up, another question on Italy. You might have answered this before I joined late because I was actually looking at other Italian banks' results that came at the same time. When I look at the participation in Creval, I was about to ask the reverse question, which would be, why not buying the whole thing? If you make a bit of assumption on cost synergies, which are going very well already in your own network, funding synergies, all the product capabilities that you said you are able to potentially put in going forward. The market cap of this is like EUR 700 million, is less than a quarter of your own profits, as in a quarter in time. It begs the question, why not, no? The banks have done deals on tremendously higher multiples. It is absolutely a question. The question is, why not?
Well, for example, this is not on the table. What we are involved in is to develop this partnership and to make it a success. Your idea might be an interesting idea from, I would say, an intellectual and theoretical point of view. This is not on the table.
Okay. Because the seller is not willing?
Because this is not on the table.
Okay.
I understand this was the last question. If it's the case, again, thank you very much to have spent this one and a half hour with me on this call, and I wish to all of you a nice and resting month of August, and waiting to talk to you in November. Bye-bye. Good afternoon. Good weekend. Good vacation.
That will conclude today's call. Thank you for participating, ladies and gentlemen. You may now disconnect.