Earnings Call: Q4 2017

Feb 14, 2018

I think we can start with this meeting. Good afternoon, everyone. Philippe Brassac speaking. Well, thank you very much for being there, for some of you, and for being connected for many others. With Jérôme Grivet, we are very pleased to meet you once again for commenting and explaining all the different results for these annual financial figures for Crédit Agricole Group and Crédit Agricole SA. Let me start, if you want, by some key messages I would like to share with you about our main figures on 2017. Well, we do think that we reached great performances during the last year, during 2017. Even, of course, and you have already seen that, even if those results have been a little mitigated by an exceptional tax surcharge in France. Exceptional, but unfair too, because we think that this tax was really too much concentrated on some entities. But this tax not only mitigated our results but had another effect. I would like simply to explain you that, of course, on the last quarter in this kind of environment, in this kind of paradigm, well, how can I say that? We didn't try to maximize all the results in this kind of environment. I think I'm clear enough with that, and I think that Jérôme will be able to explain you, for example, on insurance, how we took some decisions not to maximize taxes in this exercise. But, and this is the very important point I would like to highlight, despite this, you can see that on slide number 5, despite for Crédit Agricole Group, this tax surcharge of EUR 343 million for Crédit Agricole Group, we had sharp increase in our net income group share. You can see on this slide that for the fourth quarter, the result of Crédit Agricole Group reached EUR 922 million, an increase of 37%. I'm speaking about stated income. For the full year 2017, EUR 6,536,000,000 plus 36%. I'm very pleased to highlight that these are the highest results we have done for the last 10 years. You can check that on the next slide number 6, where you can see the chart of our different results. But let us come back to slide number 5, if you want. This was a comment for Crédit Agricole Group. I would like now to say that despite both the tax surcharge and then the Eurêka capital gain in 2016, that obviously increased the basis for Crédit Agricole SA. I would like to highlight that for Crédit Agricole SA, the fourth quarter reached EUR 387 million, which is an increase of 33%. For the full year, we reached EUR 3 billion and EUR 649 million, an increase of 3.1%. Of course, it's very important if you consider that on last year, we had this very important capital gain on Eurêka, more than EUR 1,250,000,000. I would like to highlight that, origins in stated income, this result has been reached with revenues increasing above 10.5% for Crédit Agricole SA. I did comment about the first line of slide number 5. I shall let Jérôme explain underlying results, of course. But I would like to highlight some other points in the management performance. First, and I am speaking in underlying results. First, it is a pleasure for us to do this report, having been able to reach the cost-income ratio of more than 2 points. You can see that the cost-income ratio for Crédit Agricole SA at the end of 2017 was 62.8%. Then, it is a very important point, of course, we went on measuring the cost of risk in each our business lines, only 29 basis points for the cost of risk of Crédit Agricole SA. We reached, in terms of return on tangible equity, 11.1%. I remind you that when we presented the new medium-term plan, we said that after Eurêka, our target will be to come back above 10% at the end of 2019. Of course, it is a satisfaction to reach 11.1% at the end of last year. In terms of solvency, results are good, too. For the CET1 of Crédit Agricole S.A., the result is 11.7%. I like that this includes acquisitions of entities that have always been self-financed by Crédit Agricole S.A. This quarter one is included in the quarter one of Group Crédit Agricole, that reached 14.9%. I shall let Jérôme speak about the TLAC, but as you can see, the TLAC is very high, yet very high for us, at 20.6%. I precise that this number exclude eligible senior preferred debt. To conclude with this introduction, perhaps the most important point for any of our shareholders, the board decided yesterday to neutralize the impacts of the tax surcharge in terms of dividend for our shareholders. That means that we pay our payout ratio of 50%, excluding the charges about this tax. The result is EUR 0.63. It is an increase of 5% compared to last year. We can say that for this year, including this rational, the payout ratio is of 56% compared to the stated net income. These are the main messages I wanted to give you in terms of introduction. I immediately give the floor to Jérôme to be, of course, more precise, more concrete than me. Together, we shall try to answer to all your relevant questions. Thanks. Jérôme, I give you the floor. Thank you, Philippe. I am going to go directly on page 8 because I think that up to page 8, Philippe has given the most important comments. Maybe before we start to analyze the different figures, some update on the advancement of our medium-term plan, and we start with the acquisition of the three regional banks that we finalized in the fourth quarter last year. Which is, as we already said, which is going to significantly increase our footprint in the retail banking activities in Italy, and which we expect to generate some additional revenues for us as soon as 2018. Because we expect our restructuration efforts to produce their first results this year. As an indication of the speed we are trying to impose on the integration of those three banks, we published, last week actually, a press release stating that our intention was to merge the three regional banks within Cariparma as soon as the first half of this year, in order to be able then to generate all the cost synergies that we are targeting. On this slide, you have also some additional information on the quality of the balance sheet of those banks. As you may have seen, they have an impaired loans ratio which is below 10%, at 9.2%, when it was, for Cariparma, a little bit above 10% before the acquisition, which was already good considering the Italian market. They show also a coverage ratio of their NPLs, which is above 50%. Again, it's above what we had within Cariparma, which was above the average of the Italian market. So we expect, as I said, to reach the break-even in 2018 and to have the full effect of group synergies, both costs and revenues, in 2020, when we expect to generate an EPS accretion for Crédit Agricole S.A. by at least 1% in connection with this acquisition. On the next page, we have some information on the improvement of the revenue synergies within the group. Again, this was a key element of the medium-term plan that we had presented in 2016. Because we think that one of the ways we have to grow more rapidly than the GDP of the market where we are is to further increase the capacity of the different business lines of the group to work together. I'm happy to say that considering all the new initiatives that we have launched in this respect, we are on track to reach this EUR 8.8 billion of internal revenue synergies by the end of the medium-term plan. On page 10, just a few highlights on the progresses that Crédit Agricole is making from, I would say, a digital viewpoint, just a few figures. If we take all the group brands in terms of attendance on our different online sites, we have 18 million unique visitors per month for a total of 124 million visits. In terms of apps and mobile usage of our different banking services, we have more than 5 million users of our apps every month. In terms of digitalization of our processes, last year, we were around 50% digitalized. We are now, at the end of 2017, 70% digitalized, and we are on way to reach the target of 100% digitalization of the customer journeys in the different banks of the group by the end of the medium-term plan. Of course, we are progressively developing the online and distance selling strategies. In terms of innovation, on page 11, I think that there is one new device that I want to highlight, which is the creation of La Fabrique by CA, which is the launching of a startup studio designed to generate and to accelerate, I would say, innovation through this specific organization. For the rest, I think we can skip. You know perfectly well Le Village by CA, which was launched already 4 or 5 years ago, and which is rolling out through the different regional banks within the French territory. We don't forget the cost basis, and we work on it. We have launched, in 2017, a very significant initiative, which is the creation of a single entity for all IT production centers within the group, both for Crédit Agricole SA and for the regional banks, which is going to consume significant amounts of investments, EUR 260 million, but which is going to generate very significant savings. Of course, considering the time scale of those investments, it's not going to be fully productive in terms of cost-cutting before the end of the medium-term plan, but life doesn't end in 2019, actually, and we are still and already working on initiatives that are going to generate cost cuts after 2019. We target, in 2021, 2022, to generate as much as EUR 185 million of savings in connection with this initiative. We are also working on our different purchasing programs, and we have already secured more than EUR 100 million of cost savings by the end of 2017, and we target to double, more or less, this amount by 2019. We have launched, also, a series of savings programs within the support functions of the group and within the back offices of the group. Last but not least, we are progressing in terms of client offers, and you have, on slide 13, many initiatives that we have recently taken. Let me just highlight two of them. We have launched EKO, which is an additional offer, the access offer to a bank account and to the whole group's retail banking services under the brand name of Crédit Agricole, and it's working well. We have 100,000 visits on the site per week, and 70% of the new customers that we've gained through this offer are actually new customers. So there is no cannibalization. The second initiative I want to highlight is the initiative taken by Crédit Agricole Leasing & Factoring, Cash in Time, which is a full online and almost immediate offer in terms of factoring, with more than 1,000 customers in less than three months, and with a degree of satisfaction which is at 100%. Sorry, it cannot improve further. Financially, I think we are also on track to deliver all our commitments that we've taken under the medium-term plan. As you can see on page 14, in terms of revenue growth, I think we are at or above target. In terms of cost-income ratio, we are improving. We still have some work to do. In terms of cost of risk, it was not a target, it was an assumption, but both for the group and for Crédit Agricole SA, we are below the assumption. In terms of underlying net income, we still have, again, some way to go, but we are, I think, on track to reach the targets. In terms of solvency, as you can see, we have progressed at group level in 2017. It's an increase of 40 basis points as compared to the end of 2016. For Crédit Agricole SA, the commitment is to be at or slightly above 11%, and we are already far above 11%, so there is no issue. In terms of return on tangible equity, Philippe Brassac commented it earlier, we wanted to come back above 10% after the sale of the 25% stake that we had in the capital of each regional bank. It was quite demanding, and actually, we are now above this target, and we think that it is very satisfactory. In terms of TLAC, we are, as Philippe said, at 20.6%, excluding any element of eligible senior debt. We continue to target 22%. In terms of dividend, as Philippe said, we are at or even a little bit above our commitment of distributing 50% of the attributable earnings. Let us come now to the financial performances. I think it is fair to say that those performances are reached through a very good commercial momentum in all business lines. Obviously, I am not going to read all those figures on slide 15. What you can see is that in retail banking activities, both in France and Italy, in the savings management and insurance business division, in the specialized financial services division, and in the large customer divisions, I would say that all indicators are in the green, which is obviously helping to generate a good level of profitability. Let me go now to page 17. This is a page, I hope every quarter to be as little as possible, but obviously, this quarter, we have had several one-offs as you are fully aware of. Frankly, it was not from our side, and we would have preferred to skip most of those one-offs. The biggest chapter on the one-off issue is in connection with the taxes. As far as taxes are concerned, there are two main elements. The first one, Philippe mentioned it, we have to bear corporate tax surcharge in France, which is costing the group EUR 343 million, and which is costing Crédit Agricole SA, in terms of net income group share, EUR 326 million. Of course, we have tried as much as possible to reduce, when it was possible, this level of taxation. But there was an incompressible level, and it is quite heavy for the group. It is even more heavy because this tax has been put in place by the French government in order to offset the cost of the repayment of a former tax that was declared illegal by a court. Contrary to what happens with the surcharge, we are only a very small beneficiary from the repayment of the illegal tax. The net between the surcharge and the repayment is probably, for Crédit Agricole Group and for Crédit Agricole SA, one of the highest in the landscape of French corporates. The only good thing with that is that it is a one-off, and it is not going to be repeated this year. From a tax viewpoint, we have another element, which is probably less annoying, even if it is costly again this quarter. It is in connection with new tax laws in France and in the U.S., which are reducing for the future the level of corporate taxes. So we have to write off partially our deferred tax assets, and this represents roughly EUR 50 million of write-off net in France and EUR 80 million in the U.S. All in all, close to EUR 130 million of deferred tax asset write-offs. Besides, we have some integration costs linked to the very positive acquisition that we have made in 2017, namely the acquisition of Pioneer and the acquisition of the three Italian banks for a total of EUR 54 million. We have, as all other French banks, to pay for the check image exchange penalty. It is an impact of EUR 58 million at the level of Crédit Agricole SA and close to EUR 100 million at the level of the group globally. We also had to, and we modified some goodwill values in our books. Two elements from this point. First, we have had the recognition of the bad will of the acquisition of the three Italian banks. It is a total bad will of a little bit above EUR 400 million, with EUR 312 million of group share, and this is more than offsetting a full goodwill impairment on our Polish activities. I will go back on the evolution of the Polish business, which is good, but not as good as we expected. This is why we have to impair this goodwill. Last point, and this should be, in a normal time, the only remaining line on this page, which are the recurring specific items linked to the issuer spread, DVA, hedging of loan portfolios, et cetera. If I go now on page 18, what you can see is that the underlying net income group share increased, as Philippe Brassac said, by 23% between 2016 and 2017, and all business lines contributed very significantly to this overall improvement. On the last quarter, we apparently had a slight decrease in the net income group share on an underlying basis. But actually, if you drill down a little bit more precisely, what you can see is that the growth of the operating income. Again, on an underlying basis is up 1.5%. The cost of risk is down 15%. So the profit before tax is actually up 4%. What is driving the net income group share a little bit down is, first, the equity accounted line in connection, obviously, with the deconsolidation of BSF, which took place at the end of third quarter. Then the tax level, which increased. Even if I leave aside the exceptional tax surcharges we have had, actually on the fourth quarter of 2016, a very low running level of corporate tax, and we are going back to a more normal level. This is leading to an increase in the level of taxation. If I go to page 19, what you can see is that both on the quarter and on the full year, we have had a very dynamic level of evolution of revenues. They are up 7.2% on an underlying basis for the full year and 5.5% for the quarter. On the full year, all business lines were up, excluding marginally the retail banking activities, especially in connection actually with non-euro retail banking activities abroad, where we have had a significant Forex effect. But besides, all the top lines were up. On the quarter, the level of revenue was significantly up within the asset gathering business division and within the large customer division. It was more or less stable within retail banking and SFS. I will come back on those performances later on. As far as the cost line is concerned, it is well kept under control. 3.5%, 3.7% actually for the full year, 7.5% on the last quarter. It is in connection, first, with the integration of Pioneer within Amundi, and two, with what Philippe Brassac said, a kind of incentive that we had to try to book some costs on the last quarter of the year, considering the level of taxation that we had. Cost of risk, Philippe Brassac said it already, it is another decrease, 29 basis points for Crédit Agricole, let us say 17 basis points for the group, down 22% for the SA and 33% for the group. So very low levels and no sign of significant deterioration going forward. By business line, what you can see is that we have had a further decrease within the consumer credit business. Retail banking in Italy, it is apparently up, but actually it is only a scope effect. You know that in 2017, we changed the location of the leasing activities in Italy from SFS to retail banking activities. So this is simply the reason why apparently the cost of risk in Italy is increasing a little bit. But on the simple perimeter of Cariparma, it is stable to slightly negative, slightly decreasing. Financing activities of Cacib, it is significantly down despite some specific fines. As far as other business lines are concerned, it is more or less stable at a low level. So all in all, EUR 335 million of cost of risk for the quarter, it is down EUR 60 million as compared to 2016. Page 23, again, we insist on this idea, but it is very important to note it. The business model of Crédit Agricole SA is, A, very diversified, and B, focused on retail banking customers. What you can see is that we are progressing in terms of return on normalized equity, business line by business line, even though we are not always already at the target that we had set for the medium-term plan. If I go now to page 24 with some additional indications, business line by business line. In the asset gathering activities, the most important information on this page is that the assets under management increased by 24% between the end of 2016 and of 2017. Obviously, there is a scope effect which is significant. But besides, in the asset management business, in the life insurance business, and in the wealth management business, there is also a strong organic growth. The contribution of this division is very solid, up 4% on the quarter, 7% on the full year. On page 25, insurance activities. If we start with savings and retirement, what you can see is that we have had a certain slowdown in the net inflows, but actually it is a very sound production that we had in 2017 because it is only made of unit-linked products, all in all. We are in a very healthy financial situation in the savings and retirement business because the portfolio yield is significantly above the average of our peers, close to 3%. The average crediting rate is slightly below peers, and we have the highest ever level of policyholder participation reserve. So it is a very, I would say, sound situation. In the protection and in the P&C space, we have had, in the last five years, a continuous increase in the equipment rate of our customers in both networks, regional banks and LCL. This is leading to a growth of premium income which is far above market, above 7% for the full year of 2017. This is translating into new gains in market share in all business lines in the protection and P&C businesses. All in all, Crédit Agricole Assurances is confirming, again, its position of number one insurer on the French market. In terms of financials for the insurance business, what you can see on the left-hand side of this page is the evolution of the revenues. Of course, the lion's share of the revenues is coming from life insurance activities, and there is obviously a sharp increase in Q4 as compared to Q3, which is in connection with the finalization of the yearly profit sharing hit. There is a slight decrease Q4 on Q4, which is obviously in connection with the high tax rate that we have to stand in 2017. The rest of the revenues is coming from the protection and P&C businesses. There are two elements. There is an improvement, which is in connection with the development of the business, strong development of the business. But there is, in the other way around, a slight impact of a decrease or deterioration of the combined ratio in connection with the weather-related events that we have had in France, especially by the end of last year. But all in all, a good level of revenues for Crédit Agricole Assurances. Then, on the cost basis, we took an impairment of EUR 32 million on some intangible IT assets, which is preparing the future in terms of further integration of IT platforms within the different insurance companies. Excluding that, the cost basis would be increasing by only 2.5% year-on-year and less than 1% quarter-on-quarter. Finally, the net income group share is at 2% between 2016 and 2017 on a very high basis in 2016. Amundi on page 27. I can be very quick because Amundi published its results by the end of last week, actually. What you can see is that revenues are up, and it's not only linked to the integration of Pioneer, because at constant scope, it's at 12% Q4 on Q4. The costs are under control at less than 3% between Q4 and Q4, again, at constant scope. The cost-income ratio at 52.9%, it's again, a slight improvement of a little bit around half a percentage point. So net income is up 53% on the quarter, and more than 25% for the full year. Even though we have decreased a little bit our stake between 2016 and 2017. Retail banking activity in France, LCL. A very good commercial momentum, as we already pointed out, both in customer savings and in loans outstanding, as well as in the sale of insurance policies, as you saw earlier. In terms of contribution, it's a little bit down Q4 on Q4. But actually, if you drill down a little bit on the P&L, what you can see is that the decrease in revenues is completely explained by the normalization of the home loan business, because actually, we no longer have the early repayment and renegotiation commissions that we had in Q4 2016. If we leave that alone, the level of revenues is more or less stable. Costs are a little up in the last quarter, but actually, for the full year, they are still down more than 2%. The different cost-cutting programs are well underway. We said, for example, that we intended to merge 250 branches in the remaining branches in the urban areas of LCL. The program is almost completed now. All in all, we have a return on normalized equity for LCL, which is above 12%. On page 29, you can see this trend of normalization of the home loan market with a level of renegotiation, which is now absolutely marginal, around EUR 100 million a month, where it was more than EUR 2 billion in January last year. Last point, on the right-hand side bar chart of the slide, you can see that we have now a kind of a circle in terms of underlying revenues, outside the early repayment and renegotiation fees. In Italy, again, a very good commercial momentum. You can see on this slide that the integration of the three savings banks is going to increase significantly the size of the balance sheet of our activities in Italy. The net income group share of Cariparma for the full year is more or less stable if we exclude the scope effect linked to the integration of Carim this year. Revenues, there is a slight increase Q4 on Q4, thanks to the scope effect. Operating expenses are almost stable. The cost of risk, as I said already, is stable, excluding scope effects, and actually, this stability translates into an increase of the coverage ratio in the context of a trend of further declining of the risks linked to the portfolio of loans. Actually, the new defaults are down 32% for the full year. This is leading to a further decrease in the impaired loans ratio and another improvement of the coverage ratio above 50%. Globally, in Italy, the group generated a net profit close to EUR 550 million last year and close to EUR 330 million in the last quarter of the year. It is up 13% for the full year and 8% for the last quarter. Italy represents between 14% and 15% of the net income group share of Crédit Agricole SA, and we are developing our universal bank model with the development of revenue synergies. We are actually above EUR 750 million of revenue synergies for the full year 2017. The rest of retail banking activities. In non-euro countries, I think the most important information is that despite a very negative exchange rate between 2016 and 2017, we managed to generate a net profit, which is close to EUR 100 million for the full year, up 7.5%, close to 8%. It illustrates the very good dynamic of the different banks that we have abroad. Just one additional comment on Poland. We have had, last year, good improvement of the development of our business. Despite that, the pace of transforming our initial consumer credit operation into a real and full-fledged retail bank is a little bit slower than what we expected. This is leading us to write down the EUR 220 million of goodwill that we had on this operation. Specialized financial services, very good development of the business. It is the case for the consumer credit and car financing. It's the case also for Leasing & Factoring activities. Actually, net income before tax and before the depreciation of the partnership that we had in the Nordic countries, with Ford, which is called Forso. We have a net income, which is up 2.5% Q4 on Q4 and 2.5% full year on full year. Actually, what is impacting a little bit the results of the last quarter is mainly a tax issue and also the depreciation of Forso, which is the interruption of a small joint venture, which was managing more or less EUR 1 billion of credit outstandings and a return on equity which was below our standard. We decided not to continue this business. Large customers division, very good, I think, quarter and full year for CACEIS. If I start with Cacib, revenues actually are up close to 4% between 2016 and 2017 and up close to 5% between Q4 and Q4. It's a very good performance, I think, compared to many peers, actually. In a context where costs are kept under control, where the cost of risk is declining by 64% on the quarter and by 55% on the full year. Despite the fact that we no longer take into account any contribution from BSF, Cacib managed to have more or less a stable level of profit between Q4 and Q4, and an increase of 4% between 2016 and 2017 in a context where there has been a very sharp decrease in the capital consumption. Risk-weighted assets were down almost 15% between the end of 2016 and end of 2017. I go now to CACEIS. Again, very good level of activity. It's the case for the assets under custody and the assets under administration. There is also a good development of the additional businesses in listed derivatives and private equity real estate and securitization services. Revenues are very significantly up 15% on the quarter and 8% on the full year. Considering the cost basis, we have actually an increase of the net income group share by 25% on the quarter and 28% on the full year. It's a very solid 17% return on normalized equity. In this context, we were happy to announce the finalization of the acquisition of the 15% stake initially held by Natixis in the capital of CACEIS. If I go to the corporate center, a net profit or a net loss, which is above the one we had on the last quarter. But again, including significant one-offs, we didn't take into account in the restatement of the underlying level of revenues. But what we can mention is the fact that we no longer take into account any contribution from Eurazeo. Obviously, we also have had, in 2016, a net profit in an internal reorganization of the capital of Crédit Agricole Immobilier. Again, this quarter, we tried to book some extra costs, especially in connection with tax controls, in order to try to reduce a little bit the level of taxation, the overall taxation that we had to support with the surcharge. All in all, after a global improvement of close to EUR 400 million year-on-year, we continue to confirm our target of EUR 700 million for 2019. If I go now to the activity of the regional banks, I think that it's not a surprise to say that the activity is working very well. Improvement in the development in the customer savings business and in the loans outstandings. In addition to that, what we can say is that the regional banks all together opened more than 500 new bank accounts in 2017. A gross figure, which is a 17.5% of market share, which is obviously the biggest market share of all the French market. This is translating into a net figure of 100,000 new customers for the regional bank. Let's go now to the solvency situation of the group. Philippe already gave you the figures. For CASA, there is a decrease in the level of CET1 ratio this quarter, which is perfectly understandable in a context where we finalized several acquisitions, actually, in the last quarter of the year. What is important to note is that we continue to manage the risk-weighted assets very cautiously because as you can see, the level was a little bit above EUR 300 billion at the end of 2016. It's now a little bit below EUR 300 billion at the end of 2017. It's a decrease of EUR 5 billion for the full year 2017. Just an element that we are going to, again, repeat several times this year. The impact of the translation to IFRS 9 is going to represent around 30 basis points of CET1 ratio for Crédit Agricole SA, which is going to take place beginning of 2018. You'll see that in the figures of the first quarter. In addition to that, as again, all French banks, we have now to deduct the payment engagements we have taken towards the resolution funds. This is going to represent a cost of around 8 basis points for Crédit Agricole SA, in addition to the 30 basis points in connection with IFRS 9. At the level of the group, which is obviously the most important level to assess our solvency, an increase of 40 basis points of the capital ratio between end of 2016 and end of 2017. 14.9% of CET1 ratio. RWA is a little bit up, EUR 1 billion from 521 to 522. Obviously, this is in connection with the development of the business of the regional banks. Just another element, because we are very strongly committed to present a level of TLAC by the end of 2019, which is going to be indeed at 22%. In order to secure fully this level, we are going to increase a little bit in the context where the spreads are quite cheap. We are going to increase a little bit our issuance program of TLAC-eligible debt, and we are going to replace a little bit of the senior unsecured debt that we intended initially to issue by some senior non-preferred for a marginal cost, but in order to secure this TLAC ratio level. On page 42, another specificity of Crédit Agricole SA, excuse me for that, but we had already the occasion to mention that we were constrained by the ECB and the EBA to dismantle a loyalty dividend that we had put in place in 2010. It's in connection with a specific reading of the CRR regulation. I think the best for us was to comply to this instruction. We are putting in place the mechanisms in order to dismantle effectively this loyalty dividend scheme. This is going to lead to the creation of a small number of new shares, around 6.5 million new shares, that we are going to give in compensation to the beneficiaries of the loyalty dividend scheme. It's going to be a ratio of 1 for 26, and it's going to be probably done by the end of the first half of this year. On page 43, you have some, I would say, preliminary information on IFRS 9. I think I'm not going to comment them in depth because we are going to come back to that in the end of the first quarter. Again, what you have to have in mind is that the cost of the transition to IFRS 9 is around 30 basis points for Crédit Agricole SA, as well as for the group. Page 44, the market funding program is completed for last year. There is absolutely no issue. What we even can say is that we have already started the 2018 program, which is already completed by 20%. Liquidity and funding, no issue. I think that figures are more or less the same quarter after quarter. I can, I think, go rapidly to the conclusion. As a conclusion, I think I can only repeat what Philippe said as an introduction. 2017 was a very good year, both for the group and for Crédit Agricole SA. This good result was not, I would say, changed by this tax surcharge we already mentioned. Thank you. Thank you so much, Jérôme. I give you the floor for the question, and be kind to me, asking your question very distinctly and as slowly as you can. Thanks. Please. Hi, good afternoon. Tarik El Mejjad from Bank of America, Merrill Lynch. I have three questions, please. The first one is on the earnings in the quarter. You commented a few times in the call today that you've tried to optimize the fact that tax was elevated, hence booking less revenues at higher costs. We can identify two costs, which is one in treasury retail banking, EUR 32 million, then another one in SFS, I think. If roughly, if you have to say how much, basically, you could. Because, I can't really see where really, how much that will really have changed the numbers. That's the base of my question. Second question is on tax still. This government in France has this 3% deficit as a golden rule. Are you not worried that in supposed to be companies or economy-friendly government to do like give you 69 and take back 328 million EUR, is not something that could repeat in other occasions if there is any gap in the budget in any year? Because it's completely irrational what's happened, I agree with you, and a bit frustrating. My last question is on the dividend. I think it's fair to clean the bottom line for these one-offs to penalize the shareholders. But, let's suppose in a year where you have a very high positive one-offs, which happened, for example, last year, would you be keen to guide for now a payout on the sustainable net profits? Because then you can actually pilot better your progressive dividend per share growth year after year. Thank you. Jérôme, you can start with the first question. Well, it's very difficult and more than difficult, I would say, it's impossible to answer precisely to your question. What we can say is that everywhere we had the opportunity to try to not book a profit this year and book it rather next year, or on the contrary, book a charge this year and not book it later on. We reasonably did it, but reasonably. We didn't want to play a dangerous game with the tax controllers, because we know them. They are quite active and quite accurate. It's simply a matter of optimization. We didn't try to massively change the profile of profitability of the quarter and of the full year. When it was possible and when it made sense to take some extra charge, like the write-off of a certain IT investment within Crédit Agricole Assurances, it made sense from an operational viewpoint because we are on the process of merging different IT platforms. So it was relevant to do so. When we had some costs, for example, in several entities, we had already some tax controllers with us. Sometimes they point out not only the corporate tax, but also the VAT, and the VAT is then a deductible charge. We booked some provisions in terms of avoiding for the future, having an extra cost with a lower level of deductibility. It's only marginal. It's not a massive change. Well, perhaps on the second question, I would like to tell you that, of course, it was very bad news for us to have to pay this very special tax. You have to understand that the government didn't decide this tax to offset a new deficit, simply because they had to face the decision at the very end of last year that the former tax was illegal, so they had to reimburse a very high level of amount to some companies, and immediately to find something to offset that. We said it was normal for companies doing benefits to be in this kind of situation. But the fact is that the rule that has been decided was not fair. That was the point. The rule was two steps above EUR 1 billion of revenues, then EUR 3 million of revenues, and a progressive tax. The result was that this tax was very, very concentrated on simply the very profitable companies, not only banks, but many banks in France. That was something very hard for us, and of course, I do believe that this can't be repeated, because I do believe that the fact is that the decision has not been taken for new deficits, but simply to offset immediately something that had been withdrawn by the court. About dividend, I think your question is, of course, very important, but it's something on which we have been very often asked for on the last month. I would like to say on dividend that only less than two years ago, we announced a new medium-term plan, and we stated a clear policy in terms of commercial development, in terms of financial targets, in terms of payout policy. Decided, and it was new and good news for shareholders, a 50% payout policy in cash. You don't have to forget that the target for us is that this dividend can increase thanks to the fact that our results must increase. I do think, let me tell you that because this is something very strange. I do think that if banks or companies goes in an ongoing process of increasing the payout policy, that means that they are at the end of a cycle. Crédit Agricole is not at the end of a cycle. When you look at the targets of our benefits for 2019 and in, probably, in several quarters, I shall present you a new medium-term plan. We do think that we have a great development still in front of us. We think that first 50% was a good decision. It was a fair decision to neutralize the impacts of this very special tax, of course. Now our job is to increase the benefits so that shareholders can get dividends higher and higher. I think this is the very important point. I would like to highlight another point is that in the global policy, I do promise you to be very prudent and to have risk buffers in driving the group. The fact is that in the balance sheet of Crédit Agricole S.A., we have still this very special mechanism that is called switching insurance. That means we can use excessive capital when we want, so that if, of course, we reimbursed gradually, for example, this range, we could increase our revenues. I think that the good deal is not to say to investors, "Well, I don't believe that my benefits will increase," but I shall do so that they will increase and give you a dividend higher and higher. It's very important for us not only to promise an ongoing process of increasing our dividend, but to increase results of the group at the same time. For the time being, I think this is fair, simply fair, to promise 50%, and in this very special case, to give 56%, neutralizing this special tax. I hope I've answered your question. Next question. Thank you. Good afternoon, Jacques. Henri Goularte, Pioche. Actually, I had three. One is more a remark. I really understand what you tried to do about trying to put aside as much things as possible in Q4. That has been done by a French bank 2 years ago. Some of us were in the room, actually, at that point in time. The stock price went down by 12%, not 3%. Isn't that a little bit dangerous thing to do in a way, considering that there is a lot of opportunities you have, but at some point it's a bit difficult. Just your comments on that, because it's true that there was a bit of a gap between the expectations and what was delivered, but I understand where you're coming from. The second point would be some of the one-offs you isolated, take them on board, but some of them you did not effectively isolate. The integration costs from HSBC Monaco, from CM-CIC Asia, I think. Even you could argue the depreciation of the IT expenses in insurance, the restructuring of the Lower Tier 2 in Italy, you could argue, were also things that were effectively one-offs and were not bound to recur. The third question, more strategically, is the group has undergone massive transformation over the year, and is it different to steer now as an entity and as a bank than it was before? Do you find it reasonably similar, knowing that you have less stakes and more core businesses than you had before? Thank you. Well, I don't think that you can say that we have been putting things aside on the fourth quarter of this year. Actually, what we said is that some things have been imposed to us, which are the tax issues, actually, because we are not the master of the calendars of the different lawyers or lawmakers, be it in France or in the U.S. It happens that both in France and in the U.S., lawmakers have decided new corporate tax rates, which is decreasing the value of our deferred tax assets. We have to take them this quarter. It's not possible to postpone or to just forget those modifications. Same thing with the surcharge. I don't think we can say we have tried to make things as heavy as possible this quarter. What we've tried to do is, as I said, to optimize as much as possible the context where the tax rate was high. That's true. But the tax rate was high in France, so it means that in many countries, nothing was changed in terms of policy. I think it's really what we did. This is why, actually, the underlying level of profitability, if you look at a level before tax, is up Q4 on Q4 by 4%. So really, I think that if it's a quarter where you think we've been washing the sink in every corner, generating a profit before tax, which is up in those contexts, it's not so bad, actually, if I may say so. In terms of restatement between the published stated figures and underlying figures, what we try to do is to limit as much as possible the number of elements that we restate, because otherwise we would spend half of this conference to explain all the restatements. Obviously, when Indosuez Wealth Management is making some acquisitions, it's increasing slightly their cost basis. It's a temporary increase. They are going to go back to a more normal trend. We mention it, but we don't restate it because otherwise, again, nobody will understand anything between the stated and underlying figures. As far as your last question is concerned, maybe I'm going to hand the floor to Philippe because he is steering the group. Well, I would like to answer your question on a more general point of view. When we try to give some colors on the future from Crédit Agricole Group, of course, first, let us say that the landscape is not so bad for us when you look at that. Of course, high level of uncertainty, but the environment is stable. As for the interest rates, for example, they are increasing. They have already increased for more than 100 basis points from half 2016 to now. This is the best model we could hope that means a slow increase of rates. You spoke about our core business and the fact that we did some transformation in the Group. I do think that first, our core business is not probably exactly what you think. Our core business is exactly the whole scope of the financial needs of our customers. Loans, savings, insurance, real estate solutions. Then we simplify the Group, that is right, but mainly we organize it on two very special models of distribution. The first one has been called universal customer-focused model. That means that retail bankings are very important, but they are linked by all the business lines so that to bring the global to the local at each customer. The second one is a very special choice, and for me, it is of course, the relevant choice, is the full multi-channel distribution, not simply by digital, but by branches, by phones, by Internet, by mobiles, and so on. I do think that now, Raj, we are just accelerating. That means that the group really fits well. We had this very bad surprise at the end of 2017. Despite that, our results were not so bad, since they have increased compared to 2016. What I feel today is that we are really well within the group, facing our competitors, and that we are really able to accelerate. So I am very easy comfortable within our medium-term plan as we announced it, as we promised it, and I do think that we shall be able to deliver all the commitments we took with that. So the simplification of the group was a very important point, both for the supervisors and on an internal point of view. A very special thing is that since Eurêka, it is even easier than in the past to work together in the group. It is probably difficult to explain, but now it is really easier than in the past because we have clearly the business lines in Crédit Agricole. We have the regional banks, we have the banks of Crédit Agricole, and we have a clear strategy in terms of commercial development. Once again, I think that if no surprise turned all around us, we are able really to accelerate both in commercial development and profitability results. Good afternoon, Delphine from JP Morgan. So three questions on my side. First of all, I just wanted to get a bit of color on the three Italian banks acquisitions, just to understand a little bit, if you can give us a bit of figures in terms of revenue growth or cost-income ratio or cost of risk, which I assume is quite low. Just we have some estimates. Secondly, just wanted to ask on tax rate. So you have taken the DTA impairment. Does it change in any way the tax rate you had assumed in your business plan? What should we expect in 2020? Because I assume France is decreasing, so how much benefits would you get from that? Then the last question on capital. You are going to take the 30 basis points from IFRS 9, but what about the remaining 40 basis points from trim and loaded defaulted assets? Sorry, defaulted assets, which I assume is coming this year. Thank you. Very first point. The main figure I can give you is first that we reached a very good bad will. That was the first figure where we had the benefit. Even if we made some provisions, thanks to this bad will, the bad will we had at the end of the day was a result of the first bad will and the fact that we added provisions in this Italian bank. I am very optimistic, first, in the fact that these banks are really clean now and the ability of the management, Giampiero Maioli, to cluster them to Cariparma Group, as we succeeded that, for example, with Carispezia, five or six years later, getting it from a deficit position to a benefit position. I do not know if you have something more precise. Maybe we can go to slide 8, because we have some information on slide 8. I skipped most of them when I presented the document, but we can maybe drill down a little bit on this one. What you can see is that actually, there is going to be an increase in our balance sheet, which is going to be 19% in terms of customers assets and 13% for off-balance sheet customers assets. Then in terms of loans, it is an increase of 13% of what we are now and 18% in terms of RWAs, because it is not exactly the same type of loans. As I said, the quality of this portfolio of loans is very good because the inter-loan ratio below 10%, it is a very good level for Italy, to be frank, and a coverage ratio, which is close to 55%. Again, it is a good level for Italy. In the last quarter of last year, the cost-income ratio was far above 100%, which shows the room of improvement that we have. When we said that we expect a first positive contribution to our results in 2018, it supposes that we are able to reduce massively the cost-income ratio, obviously, through the integration on our platforms. This is why actually we target to generate 20% of the revenue synergies in the integration plan, but 25% of cost synergies, meaning that we want to cut 25% of the cost basis of those banks, and obviously, it is already on track. As Philippe said, we used part of the initial acquisition bad will in order to provision certain risks or certain costs, and one of those costs is the redundancy plan costs, which has been provisioned actually through the PPA initially. I think quarter after quarter, we will give you some information on the progresses that we make on this integration plan. We have already our roadmap. In terms of tax rates going forward, as you know, in France, the corporate tax rate is going to decrease progressively. It's going to be a moving target, the normalized, I would say, corporate tax rate. What we can say is that the normalized corporate tax rate for Crédit Agricole SA is going progressively to go down from, let's say, 27%-28% down to close to 25%, as the official corporate tax rate is going to decrease. We are going to accompany, actually, the evolution of the corporate tax rate. Your last question was on capital. You were right mentioning that we allocated in the Medium Term Plan 70 basis points of regulatory costs. IFRS 10 was the biggest and most precisely identified cost. The TRIM missions are underway nowadays, and it's split between different missions, inspections which are conducted by the ECB in the different entities of the group. When each inspection is going to publish its results, we are going to take those results into consideration, and this may lead, in certain entities going forward, to certain increase in RWA, which will not be organic, the growth of RWA, but simply a regulatory growth, I would say. Of course, we will have going forward to be clear, if there is a growth in RWA, if it comes from organic growth or from regulatory strengthening. Well, I've been said we had four questions on phone. Let us take the first one if you like. Thank you. We will take our first question from Helene Calliere of UBS. Please go ahead. Hi. Hello. Thank you for the presentation. Just a few questions from me. The first one for Philippe Brassac. France is your first domestic market. Italy looks to be the second one. I was wondering whether you consider you already have a third domestic market, perhaps Poland, or would you like to basically have a third domestic market? It is true you have a well-balanced business model today, but equally, you could be more diversified geographically, and the group generates a lot of capital, so acquisition could well be the way to grow at some point in time. My second question is on insurance. You have been boosting reserve this year. Do you expect to increase reserve further to match competitors? Also, I was wondering whether you see competition picking up in insurance, both life and non-life. I saw this year that the Floriane Euro contract yielded more than the industry average for the first time in years. I was just wondering why this is the case. My last question is regarding tax integration rules. It looks like the French government could be thinking about changing these rules. I was wondering whether this could have an impact on Crédit Agricole SA. Thank you. Thank you. You asked me a question about our domestic markets. Well, let me tell you that this is not a simple definition. Of course, we have a global model in France. We have a global model in Italy, since we have all the business lines linked, working together in Italy. But in each country, we try to organize more and more the fact to work together. For example, you are not speaking about Germany, but we have all the business lines in Germany except the retail banking. Of course, it is an important exception. But we have at least five or six business lines in Germany. In each country, in Poland, in Germany, in Italy, but the same thing in Japan, for example, we try to coordinate at the highest level possible all of this business so that to create what I call this very special model of the universal customer-focused model. That means that we did not decide that we shall have only one or two or three domestic markets, but in each main country in which we work, we try to be stronger by getting all the synergies of revenues, and of course, we can get, and I can tell you this really works. But for the time being, I would like to highlight that in Italy, the results are really very good. More than half a billion euros of net income group share for Crédit Agricole, it is a very good result. I would like to highlight this is right for each business lines. Once again, thanks to the fact that they are all coordinated in a unique management on this territory. Poland is an important territory for us, Germany too. All the other countries are important for us. Sometimes we should speak to you about, for example Asia, in Japan, in China, where we have some important activities. At each time, we try, once again, to coordinate that, not to have any silos, but to have really a global bank linking all its offers for the customers. Perhaps, for insurance the- Yes. Especially for insurance. In terms of reserve, it's true that since 2012, we wanted to increase the policyholder participation reserve because we thought it was relevant to prepare for a more difficult context in terms of revenue generation of the asset portfolio. We think that now we have a level of policyholder participation reserve, which around EUR 9 billion, and so it represents 4.5% of the total liabilities, which is very comfortable. This provision may move in the future, going forward, but it's more going to be the consequence of the, I would say, the setting of the participation rate of the year for the customer and the difference between the revenues generated by the book of assets and the yield that we want to serve to the customer, rather than coming from a deliberate policy of trying to increase further the level of policyholder participation reserve. The competition is indeed fierce in insurance in France. That is obvious. But certainly, we are not going to play a game where we want to compete with others by pushing up the yield, the participation rate on certain contracts. It happens that due to the decisions taken by some of our competitors, Floriane happens to be on the upper, I would say, side of the market of equivalent contracts. But we do not have a deliberate policy, again, which would lead us to try to boost the remuneration of a type of contract like Floriane in order to attract new customers. This is absolutely not our policy. What we want to do is to serve rightly our customers, that is, to be prudent for the future and to be able to have a decent level of remuneration in the long run. We are not playing the game, I would say, to boost the yield on a specific year in order to attract new customer, and then to, I would say, deceive them in the future. Tax integration rules, you know that the rules in terms of tax integration are changing regularly. We know that the French Ministry of Finance has always considered that the French regime is very, I would say, generous. Obviously, we regularly have to argument and discuss with them. When I am saying we, it is not only Crédit Agricole. Obviously many French corporates belong to a tax integration group. We try to defend as much as possible the different benefits that we take out of the tax integration regime. We know that there are some discussions presently. For the time being, nothing very concrete. Should we transfer more shortly because we shall have to stop at 3:30 P.M. Next question in the room. Yes. Thank you. It is Kiri Vijayarajah from HSBC. The first question is on capital. You said previously, this was before the Basel paper was published, that the output floor set at 72.5% would not be applied at CASA level, but only at Crédit Agricole Group level. I wondered, since the publication of the document, has that actually been confirmed potentially by the ECB that That's to be decided by the European Commission. This is not a rule of the Basel Committee, but of the transposition in directive for Europe. We have been said that the rule will be this one, but of course, we shall have to check this point. Okay. Secondly, turning to Italy. I just wondered, when would the integration teams kind of be ready to maybe contemplate the next kind of bolt-on acquisitions? It sounds like progress and momentum is going well. Kind of timing-wise, when do you think you could maybe look at what's on the market? I think we have to respect our medium-term plan and to be able to take opportunities. That's very simple as a rule. I can't say something else for that. Thank you. Thank you so much. Your question by phone. Yes. We will take our next question from Alex Koagne of Natixis. Please go ahead. Yes. Hi, this is Alex from Natixis. A few questions from my side as well. Philippe, I do not really understand one thing. The group has changed. You have made good acquisition, your business is performing quite well, but still you are not upgrading your ROTE target. I am trying to understand why not, given that the landscape is getting better and that you are extremely confident on what you are doing so far. This is the first question. The second question is on Poland. Would you look at any external growth given that, I guess, the new regulatory tax has affected your performances out there to increase your size? The third question is on the revenue in the corporate center. I am just wondering whether you can give any kind of run rate guidance, given that things are more predictable right now. Last thing is on the AT1 coupon. I see that there is a drop year-on-year. I am just wondering if we should consider the 2017 number as a sustainable one. Thank you very much. Thank you. On the first point, to be on track and to be optimistic can become a default. That means that for the target on the return on tangible equity, it is very important for us to be at this level today. We said we had to be at more than 10%, but I don't think it is useful. Perhaps I'm wrong, but I don't think it is useful to say something more today, because I do think that the most important thing for investors is to be very clear on medium-term. When I present you the medium-term plan, I take some new commitments about development, about cost-income ratio in terms of profitability. The most important point for me is to be able to deliver all these points. Well, you can tell me that I'm too prudent, but we said that one of the characteristics of Crédit Agricole Group, of new Crédit Agricole Group, will be to be very prudent and to be as clear as possible on medium-term. For Poland, the issue today is just to look how we can accelerate our development, because as you probably know, we acquired, many years ago, a bank that was a specialized bank for customer loans. That bank was called LUKAS. We decided only five or six years ago to transform it in universal bank, adding even CIB activities within this bank. It is slower than what we could hope. So we are just looking how we could accelerate this development, because we have many business lines in Poland, and the real issue we have to address is to manage differently, probably, this territory, so that to accelerate our development. Once again, our priority is organic growth, but we prove that when there are opportunities, we're able to take opportunities, of course, if they are present. On the corporate center, I think, as I said earlier, we have confirmed our target to be at minus EUR 700 million in 2019. So this is the run rate that we want to reach. Thank you. Okay. Thank you. Next question. No more question on phone? Last question in the room. There was a question from Alex Koagne on the AT1 coupons, is that right? We did not issue new AT1 since a few years now, so the level of AT1 coupons is the run rate of AT1 costs. I am sorry, we have to end with this meeting. Thank you so much for having listened to us. Thank you very much for your confidence. Thank you.