Good day, and welcome to the Credit Agricole Second Quarter and First Half Year twenty eighteen Results. Today's conference is being recorded. At this time, I would like to turn the conference over to Jerome Grevet, Deputy General Manager and Group CFO. Please go ahead, sir.
Good morning or good afternoon to everyone of you, and thank you in advance for attending this meeting on Friday, August 3. It's very kind of you. Let me start with the first, I would say the Page number 4 of our presentation. I just want to highlight that we've just published this morning the highest quarterly Underlying profit of CASA since the IPO and the story of this quarter is a story of profitability, Of course, 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 5 of our documents, you will see that the net income group share stated published net income group share of Credit Agricolestal this quarter is at €1,436,000,000 It's up 6.5% as compared The Q2 of 2017 and for the first half of the year, it's close to €2,300,000,000 up 4.5% as compared The first half of twenty seventeen.
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 Q2, 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 Eurasia. So if we take a look at the underlying figures For CASA, the net profit is again close to €1,400,000,000 this quarter, Almost no one offs this quarter, but the improvement is far more impressive close to 20%. And if we restate those figures in order to present figures at constant scope in ForEx, Then the improvement is close to 24%. For the first half of the year, And if we 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 €2,100,000,000 For the first half, euros 3.5 percent and the underlying figures are close to those figures, euros 2.056 for the quarter and €3,400,000,000 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 bps In the quarter and for CASA, it stands at 11.4%. Seemingly, it's Stable, but actually there is a slight improvement of 5 bps, which is not seen due to the grounding effect. On Page 6, maybe just two elements I would like to highlight. The first one is that If we analyze the figures the underlying figures of the first half, we end up with return on tangible equity that is slightly above 13%.
And if we again Take into account the underlying costincome 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 Q1 of 2016, It was a little bit above 70%. On Page 7, some just some highlights On what is what has been going on in the development of new products and the development of our digital offers in our networks, You know that we've been launching Echo 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% to 12% of the new entries in relation of the regional banks. So there is no cannibalization process. Digitalization rate of our services is improving and the usage the effective usage of all our Digital and online devices is improving.
On Page 8, 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% to 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 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. And what you can see is that, as I said, the net income group share for the 2nd quarter is up Close to 20% on an underlying basis. And 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, so 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%. And again, all business lines contributed to this improvement of the top line of credit Agricole And 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%. So there is a positive draw of 4 percentage points between the top line and the cost line on an underlying basis, 7.5%, So again, almost 4 percentage points of positive jaws and restated from the scope and ForEx effect 1.9% then The positive draw is more than 5 percentage points, and you will find the same tendencies for the first half of the year globally. So in this situation, obviously, the costincome ratio is significantly down as I already stressed. Cost of risk is already it's also, excuse me, Low and further declining for the perimeter of credit ethical SA and for the last four quarters, The average of the cost of risk is 26 basis points. And 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.
And in both cases, it shows a very benign cost of risk. If we drill down a little bit on the different business lines of credit as we call SA, 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 bps on average on the last four quarters, but actually 58 bps only on the last single quarter Due to 2018, for LCL, it's remarkably stable actually. And for the financing activities of the CIB, It's very significantly down on a rolling average, 1 bps.
But actually, It's been a reversal of credit risk provision on this single quarter, net reversal of a little bit above €50,000,000 On Page 15, you have the traditional view of The breakdown of our underlying revenues and underlying profit by business lines and what you can see is that we Continue to enjoy a very good level of diversification, which is Very good asset in terms of resilience of our profitability. And 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 Yes, to date.
And so you may have seen that after a very good first quarter in terms of New inflows, the 2nd quarter was obviously a little bit weaker, but with a positive outflow And a very good quality of this inflow, excuse me, and 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, it's up €3,000,000,000 and Wealth Management, it's up €4,000,000,000 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, G and C and Protection premium income is up close to 8% quarter on quarter, Q2 on Q2. And in savings and retirement, we not only have a good level of net new inflows, But we also managed to keep and even to improve the breakdown of these net new inflows between Unit Linked and Euro Denominated Policies. In terms of financial figures, the revenues are significantly up 7.5%.
The costs are down. So the income before tax is significantly up, plus 15% on the quarter and the slight decrease The net income book share is due only to the tax effect. And 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 up Slightly up for the quarter and for the first half of the year. So nothing much to mention In terms of performance for this business for the quarter, just let me mention that Credit Agricole Assurance concluded In the last days, significant partnership with Treval, which is an Italian retail bank. It's a 15 year distribution agreement for Credi, I recall, VITA, our life insurance company in Italy, in order to distribute on an exclusive basis its product through the Treval network.
And this Partnership goes along with the acquisition of the in house Treval Insurance Broker Insurance Broker And also with the acquisition by Credit Agricole Assurance of a stake of 5% in the capital of Treval. For the asset management, I will be very swift because again, I only 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. And 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 Stability for the off balance sheet customer savings and plus 3.7% for the On balance sheet customer deposits, loan outstandings are up 4.6% with a skew with less a smaller increase for home loans And a sharper increase for corporate and professional loans. In terms of P and L, revenues are up 2%.
And within these revenues, underlying revenues, What we can see is that fees are significantly up 3% and we feel a normalization of the level of the net Interest margin. Costs are again down 2.6%, so very positive jaws effect. Gross operating income is up 11% and net income group share up 6%. So 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 3 regional banks that we bought end of last year is on its way. Ston Miniato has already been merged within Cariparma in June, Cesena in July and Rimini will be merged In September, so the process of realizing the cost synergies is starting well. And indeed, The contribution of those 3 banks to the net profit generated by our Italian retail banking activities is now positive As soon as this Q2 2018, a few 1,000,000 of euros, but it's already positive. So 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 and 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 euros which means that we are now in a position where the Improvement that we've been seeing in the last 2 to 3 years in local currencies is no longer offset by some ForEx effects. So 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 and also it's been the case for the Cash 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. And all in all, this division posted a very good level of profitability with revenues slightly up, costs down significantly down and the net profit for this division up 15% on the quarter. Large Customers division, very good quarter for And for Castellis, we have had a good momentum in terms of revenues, Especially if we restate it from the ForEx effect, in the Capital Markets division and Investment Banking division, Revenues are up 3.2% outside the ForEx effect.
And if we restate from the ForEx effect, it's even up 7%, 7.1% to be precise and it's been driven by almost all activities in this division. And the financing businesses were very successful this quarter with revenues up 13.2% on a gross basis and 17.3% we stated 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 RWA improved this quarter as compared to both the Q1 of this year and the Q2 of 2017. All in all, the net profit is significantly up, Due not only to the upper part of the P and L, gross operating income plus 6%, but also due to the Situation of the cost of risk, I already mentioned the fact that CACIB had a reversal of loan loss provisions this quarter. So the net profit is up 24% for the Large Customers division, it's 22% for CACIB and plus 43% for the Asset Servicing division, CACES.
The Corporate Center contributed also to the good level of profitability of CASA this quarter with a net loss which was a little bit below €100,000,000 It's both the result of a structural improvement that we are building quarter after quarter, both on the revenue and cost side, but also it's due to some Non recurring effect in connection with the fact that we perceived some dividend and Some positive revenues from our private equity portfolio this quarter. Nevertheless, we are on track in order to reach the €700,000,000 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 collecting deposit collecting viewpoint, but also in the field of gaining new customers plus 66 individual customers over the 1st 5 months of the year. And in terms of additional services, The sale of premium cards is up close to 10% June on June and The regional banks continued to increase their portfolio of P and C insurance policies. In terms of revenues, it's interesting to note that for the Q1 since probably several quarters, Revenues are slightly up within the regional banks, plus 0.5%.
The cost of risk It's at a low level, but compared to the Q2 of 2017, it's Significantly up because last year in Q2, the regional bank posted a reversal of loan loss provisions. So the comparison is not fully relevant. Let me go now to the solvency situation, Starting with Credit Agricole Estee. 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's up 5 bps.
It results from a stated profit, which contributes to 47 bps of solvency. The distribution is obviously consuming 25 bps out of this 47 Distribution both for dividends and AT1 coupons. The OCI reserves were slightly up 4 bps of CET1 ratio. And then the other elements, mainly obviously the organic growth of RWAs is translating into a 22 bps of CET1 ratio consumption. And actually, it's in connection with the increase in risk weighted assets.
It's up 2.7% on this Quarter from €299,000,000 up to €307,000,000,000 Nevertheless, the Tier 1 ratio, Total capital ratio and leverage ratio are still at very good levels. We on Page 29, we can see that this increase in the level of RWAs was mainly due to CACIB, the large customers division, plus €5,500,000,000 It's in connection both with the ForEx effect €1,600,000,000 but also from a good level of activity. And again, this good level of activity translated into an increase in NBI, which was higher than the increase In RWA, so it's a very positive situation. In the retail banking activities, it's up close to €1,000,000,000 It's in connection with the development of The lending activities of LCL and the asset gathering activities, it's 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 bps.
Again, the rounding effect is showing translation from 14.6% up to 14.8%. Retained earnings represented 31 bps of capital, OCI reserves 2 bps, organic growth minus 2019 and other and technical effects plus 3 bps. In terms of Funding, nothing much to say. The funding program is well on its way, both at group and at CASA level. At group level, we managed We raised €18,500,000,000 at end of June.
At CASA level, it's €8,200,000,000 at end of June, but actually €10,100,000,000 at end of July, so it's 85% 84% of the €12,000,000,000 Medium to long term market funding program of CASA 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. And so I think I can Take now your questions. Thank you very much, if you have some, obviously.
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. So should we expect to see more of the insurance profit Drop to the bottom line going forward or are you going to continue to prudently build it? And the second question is just what we might Expect in terms of risk weighted asset evolution going forward, as some of these jumbo deals are completed, could they come 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, John. The first one, you know that as far as the insurance business is concerned, 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's only an estimation of what we should do by the end of the year and the profit sharing rate is Finalized only at the end of the year. So 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. And 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. So we don't take too much attention on the In unrealized capital gains on the fixed income assets. But 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. So 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. And then 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 customers and when we are going to finalize The level of provision that we want to keep. So as every year, I think the best is to wait up So the last quarter in order to really assess the full profitability of the business.
But 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 CACIB 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. So 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, we so clearly, there is a potential for a decrease. But 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 CACIB. Of course, the increase is not going to be €5,000,000,000 a quarter in the coming quarters. That's for sure. But we could be comfortable With the present level and with the replacement of the RWAs connected with the gem bodies by some More, I would say, recurring RWAs if they generate a sufficient level of MDI.
Okay, great. Thank
you. Our next question comes from Delphine Lee from JPMorgan. Please go ahead. Your line is open.
Hello, Delphine?
Yes, sorry. Thank you for taking
my questions. So I just wanted to ask on
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? And is there anything you can tell us about recent trends and how the quarter is going In terms of margins would be quite helpful. And my second question is around capital. Just wondering If there's any the timing of the regulatory impacts 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, so 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 It's again down in the last 3, 4 months.
So 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. And so clearly, it's way too early to change our guidance. So clearly, I want to keep this idea that we are targeting for the full year 2018 The level of revenues for LCL, which would be close to the level of to 4 times the level that we've reached In the Q4 of 2017. In terms of capital, maybe just An additional comment on the capital situation of Credit Agricole S. A.
I already stressed that Actually, we increased by 5 bps 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 €135,000,000 collected. So it's going to generate another 4 bps of capital. And so pro form a actually this capital increase, we would be already at 11 point Just to mention this point. But 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.
So we know that every time the ECB is taking a look at a model, The biggest change is that it ends up with an increased requirement. So we are ready to take that into account going forward, but we have no precise calendar and no precise, I would say quantification, but 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 bps to those Regulatory strengthening within which I was including the TRIM reviews. We used or we consumed probably 35 bps between IFRS 9 and the deduction of the Commitments to pay to the single resolution fund. So we still have 35 bps without jeopardizing our capital trajectory to accommodate these trim exercises. But you know that we are in a world of moving pieces And so I think we have to be able to be agile from this viewpoint.
Great. Thank you very much. Very clear.
Thank you.
Our next question comes from Lauren Kouras from UBS. Please go ahead. Your line is open.
Hi, Jerome. 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 and L. I'm guessing the loans won't be consolidated on 2 CASA balance sheet, but just to be sure.
Second thing is on the P and C performance of the Reginald Bank. Do you expect actually an acceleration Going forward, I mean, 2.1% is not that, but I'm guessing it could be even better. Obviously, it's not in the scope of CASA, but it's still relevant for the insurance business. And the last thing is regarding Acquisitions and potentially Poland, so is that still something that you could be contemplating extending your And actually just trying to understand how you see acquisitions in comparison to reimbursing the switch mechanisms, for example? Thank you.
Thank you. Bankia, it's first, it's a start up. So day 1, there is no balance sheet, there is no volume of loans. So we are going to progressively build the balance sheet through the development of 2 different activities. The first one is to help Bankia to develop the consumer credit business on its own customer base.
And 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. And so we are then going to be able to Extend our offer to a new country or also to Maybe open some new partnerships within Spain, thanks to the development of this platform. So day 1, no balance sheet and progressively of course we are going to build the balance sheet. So it's going to be very progressive. P and C, I think that's an increase of More than 2% of the size of the portfolio is quite significant because As you know, you have to add up to this, I would say, The volume effect, the value effect, which is the increase regular increase in the pricing of P and C policies.
So 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 and this is also contributing to the 8% increase in premium income For Credit Agricole Assurance, an acceleration would be welcome, but I think that The stability of the growth at this level for the coming years would be already very positive, both for Credit Agricole SA and its insurance subsidiary and for the regional banks. But 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 and C contracts. Obviously, it was lagging far behind the regional banks because it's been a late starter in the distribution of P and C And it's now accelerating. In terms of M and 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 Purely market remarks and 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, but it's improving And we have a plan to continue to improve it. More globally on M and A, I think the issue is not To have to choose between M and A and the switch, I mean, We have been able to conclude some significant and very positive
M and A
transactions without actually using Requiring capital increase because we have been financing almost all of our acquisitions with disposals. And so the idea is clearly to be a little bit more agile in terms of the management of our portfolio of In order to get rid of activities which are either not profitable enough Not core to our strategy and to be able to generate purchase capacities In order to make acquisitions in some specific business lines and 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. So I'm not going to comment potential additional M and A transactions, but Clearly, you have to bear in mind that the type of M and A transaction that we could have in mind He's going to remain coherent with what we've been doing in the last 2 years.
Thank you.
Okay. Thank you.
The next question comes from Max Legavolo from Jefferies. Please go ahead. Your line is open.
Yes, good afternoon everyone. First question would be regarding LCL. I'm quite surprised by the dynamic of the 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 3 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 Kari Parma? Thank you.
Thank you, Maxence. 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 year, probably the allocation of Growth capacity to LCL was a little bit tight. And so 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. So we consider that it's a good element and a good Compliments to the development of LCL to address this segment of customers.
So 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, and actually what you can see is that we have more or less the same figure for the regional banks. So it's more a market phenomenon than a phenomenon purely linked to LCL. And 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. So it means that it's really in connection with the will of the corporates and SMEs in France to rebuild their Capacities of production.
And so 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. So as I mentioned, the Sao Miniato region banks was already merged in June, Chezena in July, Rimini is scheduled for September.
So it means that actually we are going to be able to work as a single bank in the Q4 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 And this is probably going to take a few quarters, a few more quarters because it's quite Easy and quiet. 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, But it's going to take a little bit more time to develop the sale of insurance products, consumer credit products and asset management products. So 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 Kari Palmer. But maybe one last element I can mention is that since Jari Palmer has taken the steering wheel within those 3 banks.
It has been developing significantly The home loan origination plus 60% between the 1st and the second quarter of this year.
Okay. Many times.
Have a good break.
Thank you.
The next question comes from Guilherme Tybergen from Exane. Please go ahead. Your line is
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. And I was wondering whether there were any one offs, sorry 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 based, there is no one off that would be offset in the coming quarter. It's the result of some significant efforts in terms of trying to improve The global efficiency, obviously, in the beginning 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, so it's now paying off. And probably if the situation continues to evolve positively, we are going to be able to Authorize CACF to continue its development. For example, this is going to be the case with Bankia Because I said that the Bankia is not going to consume capital day 1 in connection with the With a portfolio of loan because there is no loan day 1, but 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.
The next question comes from Flor Backhout from Deutsche Bank. Please go ahead. Your line is open.
Yes, 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? And more generally, also you mentioned the potential for more partnerships.
So 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, Which obviously could be okay. So 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.
And if I may just follow-up on 2 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? And 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 Chequimage, 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, well, Credit Agricole Assurance has concluded with Cresval is a partnership in order to distribute life insurance policy. So this goes along, 1st, with the acquisition of the in house broker because this is going to enable Credit Agricole Assurance to capture The fees connected to the runoff of the actual portfolio of life insurance policies That has been distributed in the past to Creval consumers. So there is a €70,000,000 to €80,000,000 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. So really the bulk of the operation is a distribution partnership.
And there is this is where there is the innovation in terms of strategy. Credit Agricole Assurance has now the will and of course with the support of Credit Agricole SA To develop, especially in Italy, its distribution capacity beyond The network of Carre Parment 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 Credit Agricole Insurance on the one hand and for Creval on the other hand, because As you know, Treval is a rather small bank with a relatively small market cap and Granting for 15 years a distribution agreement to a single partner is a major decision For them. So the idea was, I would say, to secure this partnership with this capital stake that has been taken not by Credit Agricole SAES, but by Credit Agricole Assurance.
So 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 Treval, for example, the PMC Insurance business, For example, the Asset Management Distribution business, for example, Consumer Credit Distribution business, Then we could grow up to 10% in order to continue to secure those new partnerships. This is exactly what we said. So the stake in the capital of Treval must not be seen as an investment from Credit Agricole Estate, that add a feature to secure industrial and commercial partnerships. So, hi, Bob, nothing new from our viewpoint this quarter.
No move on the provisions and no fear of worsening of our situation with the European Commission. So We don't feel concerned at all by the news that you are reporting. And 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. So it means and if you take The history of the last 4 or 6 or 10 quarters in terms of PPE evolution, you would see some ups and downs.
The trend was globally upwards clearly, but on a quarterly basis, you may have You may see some 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.
Yes. Thank you. And just on LCL, you need to clarify the guidance?
On LCL, the guidance is clearly in connection with the underlying revenues of LBL in the Q4 of 2017. I don't remember actually if the image check, if it was in NBI or in another line of the It was in NBI, but it's excluding this fine obviously.
Perfect. Thank you.
Thank you.
The next question comes from Kerry Varadha from HSBC. Please go ahead. Your line is open.
Yes. Good afternoon, Jerome.
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, and then just very quickly, could you just remind us how much capital you've got tied up in BASF 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, 2 very important countries for us. So clearly, and 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. And 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. But CACF is already active in probably 10 or 12 European countries.
So 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. So 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 Partnership, is not going to represent a massive modification of the breakdown of the portfolio. But 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 renewed Partner, which is Bankia. Bankia knows the market, knows the quality of the credit in Spain, And this is going to be a joint venture, so 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 is between €1,200,000,000 €1,300,000,000 €1,400,000,000 It's classified in HDCS. So it Can contribute positively or negatively to the OCI reserves on a quarterly basis. And in terms of capital, so it's a listed stock, so you can compute the capital consumption. Then you have The way the franchisees are allocated, but this is globally the figure.
Okay. Thank you. Great.
Our next question comes from Anke Rangan from Royal Bank of Canada. Please go ahead. Your line is open.
Yes. Thank you very much. Two questions. The first is on your I just wonder, is that something you would caution us to Why this sort of like couldn't continue the same rate as we have seen before? And do you feel maybe like tempted given it's going so well to invest a bit more to in marketing and so on?
And then 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. Your second question was regarding which business?
French Retail Banking and the Faster Gold.
In LCL. So in the French Retail Banking, let me start with this one. In the French retail banking business, it's 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 rate, because the decrease in interest rate It's putting some pressure on our net interest margin, but it's also improving the credit worthiness of our counterparts. So clearly, we have at least a partial compensation for the pressure of the NII Through the level of the cost of risk.
And I think that the good momentum that we have on the development of the credit He's not actually embarking additional cost of risk. And your first question was regarding investments, be it in IT and in marketing, if I understand correctly?
Yes, so your operating leverage is obviously very good. And I just wonder if there's anything we should consider that maybe second half should more investments coming in? Or actually do you feel tempted given your operating leverage is so good to invest more as well? Thank you.
So 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. And within this 2.5% decrease, There has been a significant increase in the marketing expenses. So it means that clearly we are reducing The level of running costs, but we are not compressing the investment capacity. So 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 Tariq M. Majad 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. I mean, this is your 2nd 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 Marco over there. And more importantly, from the economic environment and corporate growth, I mean, given the uncertainty about Implementing the reforms as fast as initially expected. So has anything changed in your view on how the country and the macro will evolve? Yes, 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. So we have to be very cautious in the choice of our counterparts. But globally, the economy grew by More than 1.5% last year.
And if you take into account the fact that probably the southern part Italy was closer to 0. It means that the dynamic in the northern part of Italy was probably even Higher than in France. So we are positive on this market. Obviously, there is quite complex political situation, but we feel that at the end of the day, There is going to be a path in order to accommodate the present situation and so we have no specific Speers about the medium and long term outlook in this country.
Thank you.
The next question comes from Jacques Henri Gaillard 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 H1 'eighteen at €2,200,000,000 Looks to me that you could easily make your higher than €4,200,000,000 net profit. Obviously, it's a question we had last year already, but Interesting to get your view about that, whether you could be 1 year early.
And the second question, I think for you, Jerome, is more like the bank The company has changed significantly, okay? You were somewhat 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. No, no, no, no, no. Let me start with the first one. Obviously, we have had a good Start this year. If I remember correctly, 3 months ago, you were not as, I would say, positive On our outlook for the full year.
So may I just take arguments from your own cautiousness 3 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. Then for the financial management of the group, actually, Yes, the perimeter has significantly changed.
Yes, we have we are now in a situation where 95% of what is accounted for in our P and L is control businesses in which we have the steering wheel. And 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, so 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 Anuez from Goldman Sachs. Please go ahead. Your line is open.
Hi, there. A follow-up another question on Italy. So 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. But when I look at the participation in Creval, I was all but to ask the reverse question, which would be why not buying the whole thing? I mean, if you make a bit of assumption on cost synergies, which 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.
I mean the market cap of this is like €700,000,000 is less than a quarter of your own profit as in a
quarter in time.
It begs the question, why not? I mean, the banks have done this on tremendously higher multiples. It is absolutely a question. The question is why not?
Well, for example, This is not on the table. So what we are involved in is To develop this partnership and to make it a success. So 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, okay.
I understand this was the last question. So if it's the case, again, thank you very much to I've 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 your participation, ladies and gentlemen. You may now