Earnings Call: Q4 2014

Feb 18, 2015

Hello, good morning, and welcome everyone to Crédit Agricole's full year 2014 and fourth quarter results 2014. I would just like to remind you, as usual, the conference is being recorded and broadcast. When you ask questions later, please wait for the microphone. Please ask your questions in English. Also, there are people listening online, and we shall be taking questions from people online as well. I think I have not forgotten anything, so I wish you a good conference. Please. Merci, bonsoir. Thank you, and good afternoon. I am very happy to see you again for the publication of our results of the fourth quarter in 2014, and very happy to see you again here in London. Before giving the floor to Bernard Delpit, I would like to describe briefly what happened in 2014, the first year of our medium-term plan. More or less one year after its launching, we have now the first results. Two things I first would like to highlight. The financial results of Crédit Agricole for 2014 show that for the second consecutive year, our group is the French bank, the most profitable and the highest capitalized, and we are extremely proud of this. We can say that our group is one of the most resilient banks in Europe. Crédit Agricole has an underlying NIGS of EUR 3.4 million and a stated NIGS of EUR 2.3 billion. For the Crédit Agricole group, the underlying NIGS is EUR 6 billion, and the difference is mostly both Espírito Santo, CACF, and the issuing spread and CVA, DVAs that we show within the accounts. The 2014 results show that Crédit Agricole has been able to prove its resilience and through its restoration reorganization in a difficult environment, as the revenues have increased by 1%. Retail banking in France is very healthy, and the different lines are also showing good growth opportunities as the reduction of expenses carries on quarter after quarter since three years. Last point worth noting, we still reinforce our financial solidity. I will come back onto each of these points. In 2014, Crédit Agricole has confirmed its resilience, which is remarkable in a difficult economic environment. In this difficult context, as I first said, we have showed good results, as I have mentioned, I would add that the ROTE is 7.5% and normalized it is 10.7%. These good results mean that the board will be able to propose on May 20 for our general assembly a dividend of EUR 0.35 per share, like in 2013, the payment will be in cash or in shares as the shareholder would wish. I already remind you that the majority shareholder, SAS Rue La Boétie, has decided to take this dividend in shares just like last year. This takes into account a distribution rate of 43%, which is 8 points more than 2014. I will add that the net tangible asset value is EUR 12.2, an increase of 12%. 2014 has also shown a very good contribution of retail banking in France. I hear regularly people saying that digitalization of retail banking and the low rates mean that retail banking is going to die. Of course, low rates make performance more difficult. We have to make the right analysis. We are close to 2013, which was a record year. In 2014, the NIGS for retail banking in France is EUR 4.1 billion for the whole of the Caisses Régionales, and EUR 1.6 billion for Crédit Agricole SA, if we only take 25% of the Caisses Régionales added to LCL. In 2014, the process activity was very good, +2.6% compared to 2013 on and off balance sheets. The activity has been somewhat more limited for lending, with +0.9%, this is mostly driven by home loans thanks to a property market which is very healthy. We have also noted a rebound in the production of consumer credit, which is now developing again. In 2014, we have also worked on the progression of our synergies in revenues in the whole of the Group Crédit Agricole, these have started well. Compared to 2013, we have already realized EUR 140 million of additional synergies. A few examples to make things more clear. In saving management and insurance, for example, the number of policies for property and casualty is +3.9%, we are going to celebrate 10 million of active contracts. In special financial services, we are seeing the deployment of the partnership between CACF and the Caisses Régionales for the distribution of consumer credit. In CIB, the setting up of the mechanism to support SMEs and intermediate size enterprises is carrying on. In 2014, we have also carried on with deployment, European development in our group. Revenues excluding France has increased by 3% between 2013 and 2014 to reach the objective of EUR 6.5 billion. The objective for 2016 is EUR 7.2 billion. Concretely speaking, the development of our lines in 2014 has taken the following forms. First of all, external growth. This is in Austria with the acquisition of BAWAG Invest. Then we have also launched a property casualty insurance for Crédit Agricole Insurance, the opening of a subsidiary in Italy for private banking for CACEIS, the extension of the network in Europe with Italy, Switzerland, and U.K. for CACF, rapid deployment in saving deposits in Germany, where we have EUR 3.5 billion with CACF. We have already set out, but I will say it again, we do not assimilate growth in Europe. We seek an external growth, buying new networks. Another point in 2014, we have also intensified our programs to reduce expenses that were already very ambitious. The most program to reduce expenses is in fact in advance compared to its objectives. We have realized EUR 178 million of savings in 2014. The objective for 2016 is EUR 650 million. Since 2011, we have realized EUR 539 million savings. We still have EUR 111 million in 2 years, and I think we can easily do that. The Caisses Régionales have made more than EUR 100 million of savings in their IT systems. We have also added new initiatives in our MTP. With EUR 115 million additional savings for 2014, the objective being EUR 220 million, such as the reduction of expenses for discounting activities in CACEIS, reduction of costs in CACF, and notably Agos, and the move of LCL to the group electronic banking service provider. In the same time last year, we have also managed to reduce our risk profile. In the difficult economic situation, our group has the advantage to have a low risk profile. The cost of risk shows that in 2014, 37 basis points in 2014 compared to 48 in 2013. The objective for 2016 is 40, so we have already improved on that. 55 basis points in 2014 compared to 67 in 2013. For Crédit Agricole SA, the objective is 55, so we have already reached that. The coverage ratio is high. It is improving well for Crédit Agricole SA. It is comparable impact loans ratio. For the Caisses Régionales, the coverage ratio is still over 100%, and the market risks are still at a low level, even with the current volatility on the market this last month. Lastly, the last point for 2014, we are still doing a very active management of the balance sheet. We have more liquidity and more resilience as well. Regarding solvability, the fully loaded CET1 ratios for Crédit Agricole SA and the group have been strengthened in 2014, reaching 13.1% and 10.4%, which means we are at a very good position at the European and international level. The strengthening of solvability of Crédit Agricole in 2014 was 3 hybrid debt issuances, which were very successful, particularly one for EUR 3.8 billion. The SIFI buffer, as you know, is 1% for the Group Crédit Agricole, and the leverage ratio is 5.2% for Group Crédit Agricole and 4.2% for Crédit Agricole SA. Our LCR is over 110%, and the surplus of long-term funding is EUR 101 billion, so a very good progression over just a few years. I would like to add that Crédit Agricole is really one of the strongest, most resilient European banks as the AQR exercises and stress tests last year showed. As you can see, 2014 has been a very busy year. Many actions have been undertaken in our medium and term plan that has been very successful. When we published our results last March, had underlined our determination to be realistic and pragmatic, to always do what we know, how we do well, to exploit, how to use up our assets, to invest in our lines, the lines that we are good at. This is exactly what we are doing. At the end of 2014, we can say that Crédit Agricole has been a slightly reorganized group that has shown excellent results in a difficult environment. For the second consecutive year, we have the best results of all French banks. The retail banking in France still defends very good revenues and commercial dynamism, and very solid profitability. Asset management is strengthened in Europe. We have a leadership position with EUR 900 billion. Insurances are also a leader in Europe. Before AXA and CNP, we are the first bank insurance in Europe. CIB has shown the relevance of the model distribute-to-originate, and financial services are now reaping the fruit of all the efforts and adaptation plan. Lastly, the group has gone over the initial objectives in expense reduction, whilst investing to prepare the future in IT, human resources, et cetera. The first results are already there, and we are very close to our objectives for 2016. I will now give the floor to Jean-Paul and Bernard Delpit. Being here, and to the ones who are listening to our conference call this morning. Let us start with the key messages of 2014, fourth quarter. You are not seeing double. These are the same that Jean-Paul outlined, and the lines for the full year, because we believe that the fourth quarter has confirmed the very good trend of the first quarters of this year. Even if we have seen some inflection, and we will try to underline those inflections. With the full rundown of BES in Q2 this year, we believe now that we have resolved our legacy issues, and that we now can concentrate our medium-term targets. I would like first to highlight a few figures of this quarter. I think you should be aware of that. Revenues are down 2% over Q4 2013, and 0.8% down for the business lines. Operating expenses are down 0.4% and down 0.5% for the business lines. That creates a huge impact on gross operating income, 1.2% for the business lines. Cost of risk is down 42% for CASA and almost 29% for the business lines. Income before tax is up 20% for business lines, and the net income group share is now EUR 687 million in Q4, up 13% and up almost 27% for the business lines. The first thing we want to underline is the good resilience of our French retail banks. You know that we have been affected since the beginning of the year by some negative and specific events, and we wanted to give to you more color on those specific impact in order to underline the underlying trends in the retail banks. The first specific event is the interest rates low level. That creates a need for provision in what we call housing saving plans. Those provisions amount to EUR 189 million for the Caisses Régionales in Q4, and EUR 29 million negative also for LCL in Q4. The other negative comes from the cap on overdraft fees created by the French legislator in 2013. That was a negative impact on the Caisses Régionales' revenues of EUR 33 million in Q4 and EUR 5 million for LCL in Q4 also. We have also the first implementation of CVA and DVA for the French retail banks. That had a negative impact of EUR 49 million for the Caisses Régionales and EUR 15 million for LCL. Altogether, this has created negative pressure, but when you are looking to underlying revenues trend in Q4 versus Q4 last year, it is 2.7% down for the Caisses Régionales and 1.27% up for LCL. The discrepancy between our two networks come from the bases. In 2013, it was a record year for the regional banks and not as strong for LCL. That is why the regional banks and positive for LCL. Still on retail banking, on page 18, we have seen some signs of recovery in the fourth quarter. We always experience this kind of recovery between Q3 and Q4 every year, as you can see on the charts here, but it is specifically strong in Q4 this year with an increase in the revenues, in the underlying revenues of the regional banks of 4.3% this year and 1.6% for LCL. Why? Because we have found some positive factors, and they will continue in 2015. First, it is a fall in the average cost of funds with more sight deposits and less time deposits, and the cost of those funds are not the same. The average cost of time deposits is 2.6%, and you know that there are no cost for time deposits. Time deposits have increased by 4.3% for the regional banks in Q4 versus Q3, and 2.2% for LCL in Q4 versus Q3, as sight deposits have decreased by 1%. This is positive. We have also a continued improvement in margins on new loans, approximately 20 basis points up in Q4 for home loans compared with Q4 last year. We have also a strong increase in life insurance commissions due to the inflows in this business. All in, a strong resilience in Q4 demonstrated by our French retail banks. The second thing I would like to underline here is how strong our other business are in Q4 and in 2014, this year. All other businesses lines keep growing and keep contributing very positively to the group, giving us a stable and recurring basis outside of the retail banks. The average quarter in 2014 is 18% up compared with the average quarter of 2013, in terms of contribution from non-retail activities to the group profit. It comes from a very strong, very stable asset gathering operations business lines, benefiting from an increase of more than EUR 100 billion of assets under management during the year, and again, 2.3% increase in the fourth quarter to EUR 1.2 trillion. It also comes from a very strong performance of our financing activities, both in specialized financial services and CIB, with outstandings increasing by almost 10% over the year and 2.2% in Q4 alone. The third message is very strict cost control across the board in Crédit Agricole Group. Expenses are slightly down in Q4, 0.4%, but it includes currency impact from the euro/dollar, which is negative for CIB. The effects from changes in the scope and the opening of new subsidiaries for Amundi, and in the SFS. Investments decided in the medium-term plan for LCL and Crédit Agricole Assurances, and restructuring cost for an IT subsidiary of CACEIS. Excluding those specific items, expenses are down 1.7% in Q4 for CACEIS. On a like-for-like basis, the average quarter of 2014 is now 7.5% below 2011, and I believe it demonstrates the structural efforts we have implemented to reduce the cost base of Crédit Agricole. Jean-Paul already gave you the main figures of the cost of risk for 2014, so I will just here focus on questions that you might have and try to sum them up here. For Greece, the story is over. We have only now 200 million EUR of exposure in Greece, and I remind you that when we finance Greek ship owners, those financing are governed by English laws or American laws. Those finance loans are in dollars or sterling. This is not a Greek exposure. For Ukraine, our total exposure is 1 billion EUR, of which 4% in the conflicted areas of the eastern part of this country. Our capital in that subsidiary is now less than 100 million EUR, and it is self-funded. The liquidity that we grant to the subsidiary is balanced by deposits of the subsidiary in CASA's books. For Russia, our credit exposure is now 3.7 billion EUR as of today. It is down compared with the end of 2014. Most of that is due to big corporates, and we do not fear any default from those big corporates. For the oil and gas sector, we believe that the exposures sensitive to the oil price changes amount to 6 billion EUR. For those 6 billion EUR exposures, we have 4.2 billion EUR guarantees, and for the total exposure of the oil and gas sector, 33 billion EUR, 87% of our counterparties are investment-grade. So we do not believe that this sector is in a difficult situation today from a banking perspective. Last but not least, one of the key messages of 2014 is the tremendous work that we have achieved in strengthening Crédit Agricole's balance sheet. From a CET1 point of view, an increase of 190 basis points in the year for our CET1 ratio. It reaches now 10.4%, above most of our French peers. Regarding now the total capital ratio, which is key for the TLAC and the MREL, which is today's main concern for the banking industry. For the group, it is already at 18.4%, and we believe that we will be compliant with the TLAC requirement very soon, thanks to very active management of hybrid debt and to the accumulation of common equity Tier 1. In terms of MREL, we are not far, and I will show you that later, from the 8% threshold. From all those points of view, we believe compliant with the future rules, and ahead of the schedule. For the leverage, this is our first disclosure of CASA's leverage since now that the Delegated Act has been published. For CASA, it is 4.2%, and for the Group, 5.2%, so well ahead of the requirements from the Basel Committee. Just a word about the conglomerate ratio. We are not really used to talk about the conglomerate ratio here. The conglomerate ratio for CASA is 239%. It means that we have more than double the minimum requirements from both accumulated from an insurance point of view and from banking point of view. Last, in terms of liquidity, we are above 110% in LCR, both for CASA and the group, and we have increased by more than 100 billion EUR the net stable resources over assets since 2011. We do not calculate yet the NSFR, but I think that is a good proxy of how we are regarding NSFR, well above 100%. Now let us quickly go through the different business lines. For the regional banks, as I said, good business performance. I would like to underline loans outstanding that are up 0.6%, including 2.2% for home loans. As Jean-Paul said, a rebound in consumer finance up 2.5% in Q4, and also a recovery in origination for SMEs and small corporates. Loan production has increased by 3.9% year-on-year in 2014. Underlying revenues, as I said earlier, are down 2.7%, but expenses are down 4% thanks to efforts on the IT expenses of the Caisses Régionales. Cost of risk is down 15%, with an impaired loan ratio of 2.6% and a coverage ratio above 100%, including collective provisions. The contribution of the Caisses Régionales to CASA amounts to EUR 201 million in Q4 and above EUR 1,026 million in 2014. For LCL, you know that the transformation plan has been launched at the beginning of the year. It's doing well. Business performance is good, with sight deposits up 6.8%. That's key for the cost of funding. Insurance business in LCL is up 4.8%. Home loans are up 3.9%, with still a very strong liquidity management and a loan-to-deposit ratio under 110%. Underlying revenues are up 1.2%. Expenses are down 0.9%. Cost of risk is very low, EUR 17 million in Q4, with an impaired loan ratio of 2.3% and a coverage ratio of 73.8%. In Italy, Cariparma has done a very good year in 2014 and compares very well to its Italian competitors. Number four by pre-tax income. It increased by 18% versus 1.7% for Italian banks. Number two by cost-income ratio, 55 versus 59 for the average industry in Italy. Number four by asset quality. Still a very strong control in terms of liquidity, with a loan-to-deposit ratio of 88%. Increase in revenues up 5.3% on a yearly basis and 9.7% on a quarterly basis, with higher volumes even if margins are down. We have seen also expenses down 4.2% in the quarter. Cost of risk is EUR 140 million, a bit above my initial guidance, but it takes into account non-recurring effect, both coming from the AQR and for a change in the methodology to compute recovery delay for Cefrenz. The underlying trend is in the region of EUR 100 million. It has not materially changed since the beginning of the year, and we expect it now to decrease in 2015. Just a word about our other international banking operations. Still good in terms of liquidity indicators. Globally, a surplus of EUR 1.2 billion of deposits over loans. Net income group share is positive in Poland, EUR 48 million, in Egypt, EUR 40 million, in Morocco, EUR 17 million. Zooming on Ukraine due to the specific situation in this country, EUR 16 million net profit. Strong gross income ratio in order to finance provisions if needed. I remind you that the local currency has dropped against euro, so it creates a negative impact of EUR 12 million on the net income. Savings management and insurance, very strong year with assets under management increasing by EUR 112 billion, including EUR 45 billion in flows. Strong in Amundi, thanks to international business. Strong in savings and retirement, both in France and in Italy. Positive inflows in private banking. CACEIS has increased its assets under custody and administration each by EUR 100 billion, so a very strong year in terms of business momentum. A net income group share for all those businesses of EUR 1.5 billion up and EUR 391 million in Q4 alone. Zoom on Amundi. Amundi keeps growing and strengthening its franchise and its contribution to the group with EUR 866 billion in assets under management, up 11%. All customer segments are improving, including long-term assets, and that's key. Just to mention, we have enhanced the product range of Amundi. We just give two examples. The partnership with EDF to finance energy transition and the mandate from the ECB for ABS buyback program. The revenues are up 7.4% on a yearly basis. Expenses are up 2%, excluding new entities, and the contribution of Amundi to CASA, EUR 93 million in the quarter and EUR 369 million in the year. For insurance, Crédit Agricole Assurances is number one in France with excellent business momentum, nearly EUR 249 billion funds under management, up 5.9% over the year. The share of UL is increasing to 18.7% for life insurance. The contribution of this business to CASA profit is EUR 260 million in Q4, and EUR 1,038 million in the year. For specialized financial services, after an intense adaptation plan starting in 2011, this business is seeing a recovery with an increase in production across the board. For consumer finance, the total production is up almost 10% in Q4. The loan book has increased by 1.4% before the disposal of loan portfolio in Agos Ducato, and the self-funding ratio has increased almost 60%. We have a target of 70% in the medium term. Same situation for leasing and factoring with the same figure, 5.8% up for both lease finance and factored receivables. Net income group share is EUR 46 million in Q4, or EUR 18 million before the decision of the German Supreme Court to ask consumer finance business to retroactively pay back handling fees to customers. Expenses are down, cost of risk is down, and the cost of risk in Agos Ducato did particularly well. It is down 30% in Agos. It totals EUR 148 million in Q4 due to EUR 26 million of provisions on poor-performing loans. We are well on track to reduce again the cost of risk in Agos Ducato in 2015. CIB did a very strong year and a very strong quarter. Particularly strong in fixed income, with revenues up 10.6% in Q4. Strong also in financing activities, up 2.3%, so all-in revenues are higher, up 3% in Q4 for CIB. Expenses are under control, up 1.4%, with a cost-income ratio of 56.9%, down 300 basis points compared with 2013. Cost of risk is low, EUR 82 million in Q4 this year. Equity affiliates did a good job with our bank in Saudi Arabia. The net income group share of CIB in Q4 is EUR 255 million, excluding spread CVA and DVA, and EUR 1.1 billion for 2014. Quick look at the corporate center, where the annual deficit is in line with my medium-term guidance. Nothing really new here. You have the last phase of the Switch implementation. Now, what you find is a run rate for 2014. The tax rate has increased compared with 2013, where you can remember that we deducted the capital increase of Emporiki. We do not have this deduction again in 2014. That is why taxes have slightly increased. A quick look at consolidated group level. Regional banks, nothing really new compared with what I said earlier. EUR 832 million net income for the regional banks on the quarter, and EUR 3.5 billion over the year. For Crédit Agricole Group, again, EUR 1.3 billion net profit in Q4, and EUR 4.9 billion profit for the total year, with income before tax increasing by 2.6%. Now let us move on to the solvency and liquidity position. For CASA, as I said, we have been very active on that side, with strong issuance activities for AT1 in order to increase our total capital ratio. Fully loaded CET1 has increased by 190 basis points in 2014, and again, 30 basis points in the fourth quarter. It includes the scrip dividend that came for, the commitment of the Caisses Régionales to have the dividend paid scrip. It is in our ratio here. RWAs are slightly up. The EUR-dollar exchange rate is driving RWAs up slightly in Q4. I will not comment again, our leverage and the conglomerate ratio. Same story for the group, with a very strong situation for the fully loaded ratio of 13%. Nothing really to mention here. Now, I think it is a favorite of everybody's is how we are doing with TLAC and MREL. For TLAC, we are at 18.7% at the end of 2014. With the bucket of 2.5% of RWAs for the senior debt, that would bring us to 21.2%, so in line where we believe the end game from the FSB will be. For the MREL, we are today at 7.2%, so not far from the eight threshold that will allow us to use, if needed, resolution fund. Some words about liquidity. One of the main achievements since the last four years. As I said, looking at the cash balance sheet, first, the total cash balance sheet is under control. It is down EUR 10 billion compared with last year, with a surplus of EUR 101 billion of stable resources over assets, which is key. As I said before, it is my proxy for NSFR. We will not have any difficulty to meet the targets of NSFR. The increase comes from TL0, retained earnings, and improvement in the loan-to-deposit ratio. Just a word about our funding. 2014 was a very intense work for our teams, both at CASA level and in the subsidiaries. For 2015, we have a program of EUR 10 billion issuance in the market, already completed at 17%. Last, our liquidity reserves, almost EUR 250 billion with the usual buckets, central bank deposits, securities, and eligible to ECB, well above the EUR 121 billion short-term debt coming from the market. I think that is it for me. Many thanks for listening. We shall now open the floor to question. Please question in English, as the conference is being recorded, and please limit yourself to two little questions in order to leave time to your colleagues. Thank you. Thank you. Good morning. I would like to start with a question which is not directly related to the results, is the potential restructuring of the group. Because on the one hand, we have seen in the press that Crédit Agricole SA could receive EUR 5 billion as a compensation, so it is a positive. On the other hand, if you were to apply the BPCE Natixis model, that would lead to a tax cost of EUR 2 billion plus. So a huge variance. If you could guide us towards what could be the outcome or clarify a little bit what could happen. A second question is regarding the leverage ratio. What is the amount of the adjusted assets? I think it is about EUR 1 billion, but if you could explain the movements. Thank you. Right. On the restructuring part, you know that we have been discussing this issue for several weeks, several months. In fact, the situation has not actually reached a conclusion, and we are pushing for it because any organization should be able to develop itself and make progress. Now, I personally am in charge of a balanced development so that all stakeholders, whether they are customers, whether they are worker-employees, shareholders, minority shareholders, would find their own satisfactory level in this transaction. So we will give the green light once we have an adequate solution. Of course, we need the authorization of regulators. We are not yet at that stage. As soon as we have developments, we will inform the markets. Of course, the price will depend on the organization which will be set up. We are very mindful of our position and making progress. It's EUR 40 million on the numerator and EUR 950 billion on the denominator. For Group Crédit Agricole, it's EUR 73 million of EUR 1.4 trillion. So you are aware that under the Delegated Act, what is related to regulated savings, and most of the funding schemes between CASA and the Caisses Régionales are due to regulated savings, are not taken into account. That's why we have this kind of figures. Hi, good morning. Tariq El Mejjad from Bank of America Merrill Lynch. Two questions from me, please. First, on the outlook. I didn't see anything in the position about your outlook in terms of ROE, of your dividend policy, and so on. Secondly, on the asset quality, mainly on the French retail and LCL. Do you see this very low cost of risk sustainable, or because it's significantly below your normalized amount? Do you have any comments regarding that? Thank you. For your last question, we believe that the run rate for French retail is in the region of 20 basis points. So what we've seen in Q4 might be low. It has to do with write-ups. For example, in LCL, in Q4 last year, we made some provision for H2R. We didn't have to use it, so we write them up. So it explains why it's very low in Q4. But having it in the region of 20 basis points, I think is the run rate. Sorry, I didn't take your first one. It was related to the- What are the prospects in terms of future prospects? There is a plan which was developed for very strong organic growth. We invested in retail bank, on Caisses Régionales, which gives 25% to the Crédit Agricole SA. For LCL, we have a very sustained investment plan in order to make progress. In Crédit Agricole SA, you've seen in the figures that there is a significant development. For Amundi, we want internal and external growth, and we are working on both very quietly. If we have a target, one day, we will look at it in a cold light of day, and we will appreciate it. But in other lines of business, we are encouraging the development of activities. In specialized services, there are developments, and in terms of profitability, this is what we are doing. When we understand our ROTE linked to the underlying results, we are at 10.7, which is pretty good. Then there is a policy of dividend distribution. We had an assumption of 50% in the next few years, and we will see over the years how all this will develop. Of course, we need to very seriously work with all shareholders and give them the answers that they're expecting. The question of dividends. In the medium-term plan, we said that in 2014, we would have a 35% payout ratio. But we also said that above 9.5% of fully loaded, we could change to 50% the payout and the proportion of scrip dividend taken by the Caisses Régionales. We conducted an in-depth analysis of our ratio, and the reason why, even if we are above 9.5%, we kept the same amount of dividend in EUR, it's because there are potential gains coming from bonds and all assets that have increased by 50 basis points between 2013 and 2014. We believe this is very volatile, this could be reversed. So changing the guidance in terms of policy based on such volatility wouldn't be sound. Same thing for RWAs. Our RWAs at the end of 2014 are very low compared to the trend that we gave in the medium-term plan. We think that the Eurodollar will have an impact on RWAs. From that point of view, also, 2014 was a very low starting point. So based on potential gains, plus AWA situation, we took a decision different from the 35% or 50%, we are 43%, which has improved compared with last year, but completely consistent with our guidance in terms of increasing our capital base again and again. Yes, morning. Delphine Lee from J.P. Morgan. Two questions on my side. First of all, just to come back on maybe your Investor Day targets. It looks like your business lines have not grown this year, but you are still targeting, I guess, the same target. I am just wondering if you expect stronger growth coming from SFS or the investment bank to kind of accelerate in the next few years, or if you could just give some guidelines a little bit on how you are progressing versus the targets of 2016. The second question is on capital requirements and potential changes, if they are coming or not. If you could comment on the Danish compromise, is there any risk or not at all? Or how you approach this topic, basically. Thank you. Right. As far as the line of business growth is concerned, we are in line with our guidance. In view of the latest developments, the Amundi results are slightly better than what we expected, and things are working rather well. As far as specialized financial services are concerned, which is consumer crediting, leasing, and factoring, are gaining momentum after some disruptions. We remain very hard on certain things, and we can see that we are now going back to gaining momentum. We have done what we needed to do. In terms of CIB, we have, again, good results. The lines of business are in line with what we had in our midterm plan. In terms of CIB, some people thought we were optimistic, but we are keeping to our own objectives, and there is no reason to think that we should be pessimistic on these activities. That is what I can say in terms of our guidance. In terms of capital needs and the Danish compromise, it is an issue that is recurrent. Today, I note that a lot of banks in the Euro zone, after AQR and the stress tests in terms of BC, for example, if there is a debate someday, there will be a lot of representatives from nations and countries who are affected and will be affected. I think the approach has changed now. France was isolated, but now there are more of us. If there is a change, the change will be much more difficult to discuss. There is also a significant period of time to take into account. When you look at the ratios which are at good level today, there is a capacity to absorb certain shocks without difficulties, but the arbitration will be complex. We will publish the consequences of this impact should it occur. I think thanks to our results, we are quite capable of absorbing this particular shock. We are very watchful. We are watchful in terms of our results and the management of our results and what we do with them. Good morning, it's Nick Davey from UBS. Can I ask three questions, please? The first one on risk-weighted assets. You mentioned that they are at very low levels currently. I just wondered whether regulatory inflation to risk-weighted assets had entered your thinking, be it on the credit risk side or the market risk side, whether that's one of the reasons for your caution. The second question, please, on the Danish compromise and the sensitivity. You mentioned your very high financial conglomerates ratio. I just wondered whether you would be willing to speculate that if the Danish compromise were to be removed tomorrow, for example, to what extent you could increase the leverage in the insurance business to reduce the sensitivity of CASA to that impact. The third question, please, on the profitability of the CIB. If I look away from the financing business and just focus on the fixed income business, it seems that the ROE is perhaps a high single digit, 7% or 8%. I just wondered if momentum has been very good in 2014, but if momentum slows a bit in 2015, what can be done to improve the ROE of the fixed income business? Thank you. Right. On the first question, on the potential impacts of regulatory changes, flaws, and so on. Frankly, Nick, it's too early to tell what kind of impacts we could have. Frankly, we are nowhere exact today to make any specific assumption. To answer to your questions, it's not because we fear anything from the regulatory standpoint that we are lower than what we anticipated in the plan. It's very difficult to calculate any potential impact of any potential changes in the regulatory field for RWAs. The answer is we are not lower because we fear anything. It has nothing to do. It has to do with business. Right? For the Danish compromise, I think we are not intending to increase the leverage of insurance, but you are right to underline that the potential outcome of a change in the regulation, and that's quite paradox, would be to do so if needed. We do not want to leverage insurance. We believe that would not be sound from a pure economic point of view. That's why we believe that the Danish compromise is a wise way of looking at insurance in the scope of a banking group. That's it. For profitability of market activities, it will improve. Thomas Gazet is here. I am sure he will answer it correctly. We will have to reduce cost again. We will have to increase revenues again. We are not exactly where we plan to be, but we are not at the end of the plan. Being with a double-digit return for market activities is definitely our target. Hi, good morning, everyone. Geoff Dawes here from Soc Gen. Two questions from myself. First of all, particularly on the French retail businesses, you've mentioned a resumption in credit growth a couple of times. Could you give us a little bit more color and detail on that? Is there enough credit growth in 2015 for revenues to actually grow in French retail on a stated basis? Then the second question is around the smaller Italian banks, the popolari banks. First of all, any interest? Second of all, do you think it'll lead to any competitive changes for your own business if you're not involved in any of the potential consolidation that we have there? Thank you. Yeah. As far as the retail banking in France, we have this digitalization of banking activities. We are fully part of that. We anticipated these developments, and we are very much working on this. The increase of the revenues, the cost of resources are lower, because the site deposits are different. The credit spread is improving as well, because you have lower rates, but the drop of rates during a short period. If the drop lasts, but it's stable, we will have less problems. As far as global developments are concerned, the inflow is pretty good. We have a good situation in terms of the property market today. Our margins are improved, and are improving. In terms of volumes, we have a lot of home loans on the way. I can't really tell you what the future will be, but we are confident that there is a recovery after a very difficult period, particularly on what we are talking about on home loans. As far as Cariparma is concerned, today, we have said it. We've said that we're very proud of the management of Cariparma, the increase of revenues, and the cost reductions. When we compare ourselves to others, we are pretty healthy. The cost of risk remains stable over 2014, and we hope that things will improve, because Italian revenues growth is not what we thought it would be. If there is no growth, we won't be there. We want to stabilize, improve our profitability in these particular fields. This is an issue which we clearly identified, but we still need organic growth in Italy with Cariparma. Do not forget that in Italy, we have a consumer credit growth, FGA Capital joint venture with Fiat. Our lines of business, of Amundi, insurance, and BFI, all of these are working very well. We need to have an overall look at it to appreciate the situation. I understand that you do not want to talk about the price of the potential transaction with regards to the reorganization, and that is fair enough. What I just wanted to try to understand is the nature of the asset that you are potentially selling. We have already exchanged on the fact that there is not much cash flow that is going in or out of CASA on this. I am just trying to understand for us to be able to try to figure out what is actually you are giving away, and you can be compensated for, the nature of this and what you are actually selling in a sense. The next question is just on litigation. I just wanted to know, this morning, or in an interview, you have been willing to say that the perimeter of business, which is under consideration in your U.S. situation, is significantly lower than some of the other banks. Just wanted to know if you would be willing to share that number, the perimeter of business, at least for us to be able to figure this out. Yes. As far as the cost of transaction is concerned, you talk about the cost of transaction and feasibility, but for the time being, the case has not been decided, not been confirmed. I cannot really preempt the possible results of this case. There are different parties concerned. Everybody will have to determine their own position between sellers and buyers. You have supervisors, you have regulators, you have a possible law which may confirm all of this. I am talking in the conditional. If it was done, this is what we would need to do. But for the time being, I am telling you that in terms of my responsibility and my duty, I should make sure that all interested parties are looked after, particularly minority shareholders, who are particularly important, particularly in view of majority shareholders and buyouts, et cetera. So, this is a delicate issue. I will not go any further as far as the price is concerned. What will be the thing that you're going to sell? What is the object that you're going to sell, and what will be the price? These are the questions that you're asking, but I can't really give you any more answers on this particular issue. As far as the American part is concerned, I would like to state it again very clearly. We always cooperated with American authorities in a very transparent manner. This is the way we operate. The scale, the perimeter they're talking about has nothing to do with what you've heard. The proportion we have has nothing to do with what you've heard. We are waiting for a decision on the part of the American justice system. We can't preempt, again, what may or may not happen. We would like this issue to be dealt with, because of course, it's in the interest of everybody, but we're waiting for further developments. I can't tell you how much, what, where, or how, because the decision is not mine. Omar, Jefferies, hello. On insurance. You were in line with your EUR 1 billion profit target, but the production has been extremely strong. Coming into 2015, should we finally expect to see that come through in terms of the net number, or will you be continuing to strengthen the reserves, particularly given that, with the livret A and deposit rates so low, you'll continue to see inflows? The second question, sorry to come back to capital return. On the dividend, what minority shareholders really want to know is when can they get a cash dividend that's free from the impact of the scrip effects to the cash? For 2015, is that more or less likely versus when you gave us the medium-term plan? As far as the dividend is concerned, I will let Bernard deal with that. But was given some working assumptions on the 20th of March 2014. Under 9.5%, the share out would be 50%. We still remain with that. When the year progresses, or when 2015 progresses, we will take stock and see what we will decide. For the time being, nothing tells me that we should change this particular working assumption. We're still on that particular road, avenue. But let's wait a few months and see if we can confirm our position. Ratio, the more we go, the closer we are from the time where we will have a cash dividend. When? Still question mark. On insurance, we are seeing today a positive trend, so we expect the revenue of Crédit Agricole Insurance to increase again in 2015. As you mentioned, we have improved our reserves in 2014. The PPE is now EUR 2.9 billion. So we try to strike the right balance between strengthening reserves inside the policy holder portfolio and to improve the revenues for Crédit Agricole Assurances. And we are expecting increase in the revenues of insurance in 2015. Yes. Charles. Charles de Croisset, Goldman Sachs. One strategic question. I am sorry. Perhaps a more strategic question. You are an excellent retail bank, especially in France, with a very good cost income ratio. I am using Jean-Paul Chifflet's words. Could you tell us more about the way you see the digital revolution affecting this business? My question may be a little bit unfair because this is really something developing now, but what is your medium-term view on how these retail networks, such as yours, are going to evolve? Regarding retail banking in France, because indeed it is quite important for Crédit Agricole, we are preparing, and we have all the tools, all the means at our availability, and we are determined as well. We think retail banking really has a future between digital and between branch relationships and human contact. I think things will happen in between these two, and those are part of the most determined, ethically in a way, to go forward. I was a rugby player in my past, and I know how morale and determination is important, and I think that is what we are doing. It is a long road for several years, and we will move forward for retail banking in France. Why? Because we know that we need to invest so that our consumers and their clients can do everything numerically, digitally. This is a technical work that needs money, but we have been doing it. We have invested a lot. Technically, with a multi-channel platform, in fact, and this takes time as well. Regarding competitivity, we have an operation coefficient that is 10 points lower than our competitors, so we are more resilient than them, and we will have to see how things evolve in the future, but we have sufficient reserves. Lastly, we are also working a lot on human resources, and Crédit Agricole is well-known for that. We know that things change, and in a branch where before there were several people welcoming clients, this is not necessary now. Maybe just one person is necessary, but Things have to be organized in a different way so that clients can be supported really very deeply and fully. Before there was maybe one manager for one branch with four or five colleagues, and now a regional director will oversight maybe three agencies with 12 colleagues that will be more specialized. For example, there will be a savings specialist, a home loans specialist, insurance specialist, et cetera. So that when the consumer, when the client comes, he can speak to somebody who is very professional, a real expert, and I think that will make the difference in the future. It is necessary to build up this proximity contact. People say the number of branches is not important. Indeed, it is true that the property in itself is not very expensive maybe, but it is the human resources that cost and that are important in the evolution, in the development. I think on this kind of playing field, it is one of our values, fundamental values. We know it is a challenge for us, but I think all our teams are fully committed and determined, and there has been already many changes starting, and I can think of several branches that have already started changing. In fact, I even would say that we have one step forward compared to our competitors. In 2014, we have originated EUR 2.5 billion home loans with e-immobilier, which is a new application within the Caisses Régionales. Just to give you an example that we are moving in the digitalization without maybe making too much noise about that. We are moving. Thanks. It's Bruce Hamilton, Morgan Stanley. Sorry to go back to the dividend, but just to try and help me think, in terms of the Danish compromise, is it wrong to think that if we assume that this could be phased and it's a 235-ish basis points deduction, the Caisses Régionales would therefore prioritize taking scrip in order to build up the CASA Core Tier 1 to offset that risk? Or have I thought about that wrong? Secondly, on TLAC, you gave us some help there, but could you give us any sense of how the cost might impact the targets you set for CASA as we look out over the next few years? Regarding dividends, you are right to mention all these different evolutions. It's true too, it's good to think aloud to carry on with this analysis. I'm still convinced that we have an organizational structure that requires some strengthening in CASA with some proportions that I've given. We said 9.5, and over 9.5, we will go to 50% of dividends. This is always our working premise, and we need another few more months to know where we're going towards as far as growth is concerned and our trends for revenues, expenses, risk to have a better vision of 2015. We know we have good conditions now at the beginning of this year, but it's still only the beginning of the year. Also the regulatory situation, we might need to adapt to it a little bit more as well. What is important is that Crédit Agricole can choose, has the capacity to choose. That wasn't so much the case three years ago. With all the progress we've done on the ratio, resolvability, liquidity ratios, we have the possibility of choosing, and this is really important. What is important is that for the shareholder, we'll have to make the different, the good choices for the minority and majority shareholders. So whether share dividend and taking into account the outlook for the group, of course, a shareholder wants cash in some cases. But some others want a medium-term work. We have to keep this balance in mind and the determination and what the wishes of future shareholders and whether we want to act short-term or with the longer term. For Crédit Agricole, we do have a more medium-term or longer outlook. That's our choice. We will probably carry on with that. On the TLAC, Bernard? Calculate kind of incremental impact of new subordination on our cost of funds. The only point I wanted to say that in terms of size of our hybrid debt today, we are already where we should be in 2019. There is no much incremental issuance to do in the next years. We will have to roll a certain volume of hybrid debt in a new format, maybe. We do not know exactly what will be the additional cost of those new TLAC debt compared with former Tier 2 debt. Let's say that in our case, additional cost will be only the gap between former format and the future format, not in terms of volumes. For certain banks, they will have to add the cost of subordination and the high volumes of new issuances. Right? In our case, I think the volumes to issue to be TLAC compliant are very much in line with what you have already seen in terms of yearly funding program. It's completely manageable. Now, I understand your point. The cost of a new Tier 2 or Tier 3 or whatever you call it, will be different from the former hybrid debt. It's difficult. When I meet DCM colleagues, they have completely different assumptions on the cost of subordination. Frankly, I'm sorry for that, but it's too early to give you figures. Please keep in mind that in terms of volumes, what we have to do is limited compared with other peers. Are there any questions on the phone? We will now take a question from Guillaume Tiberghien from Exane. Please go ahead. Yes, good morning. I have got two questions. The first one relates to the corporate center in the line cost of financing. I understand that the debt that you raised to do all the acquisitions of the past was a very long-dated debt, but it was not just perpetual debt. I am actually surprised that you are not able to reduce, even if ever so slightly, that line of the negative PNL. If you cannot, then can you give us a flavor as to when you think that will become possible? The second question relates to capital buildup. Basically, during the quarter, your earnings were fully offset even more marginally by RWA growth. You made a comment that RWA growth will pick up a little bit in 2015. I was wondering, on capital buildup, how much do you think you can grow, or why you are not able to grow the capital this quarter on an organic basis? Well, on the corporate center one part of the explanation comes from the incremental cost of Switch. It has more or less balanced the rest of the cost of the debt in the corporate center. We have this kind of two moves, more cost for Switch, and less cost for the rest of the debt. If we find opportunity to call some of the existing debt, we do it. It depends on market opportunities. I cannot give any guidance on that. Every time we can do that, we do it. If you try to look at the EUR 645 million of cost of funds we have booked in Q4 2014, the part coming from the Switch is now stable at EUR 147. Switch and other positive moves coming, for example, from the leverage of insurance between Crédit Agricole Insurance and the corporate center. It is a negative Switch, but it is positive with interest taken from the insurance. For the other cost, EUR 517, it is really stable. For the other parts of those EUR 645, we have limited impact or technical impacts. I will not elaborate on that. There is not much to say. If we have opportunities again to make some liability management, reduce the cost in the corporate center for the debt, we do it. We have called a preferred share at the end of last year. This is the kind of things we do in order to reduce the cost of the historic debt taken by CASA to finance its acquisition. But Guillaume, I will not give any new guidance. I keep the same that I gave in the medium-term plan. For the capital buildup, I don't think it's fair to say that all return earnings were more or less balanced with an increase in RWAs. There are specific events in 2014, such as a prudent valuation impact, which is more limited than what we thought initially. But it has weighed on the ratio for every bank and for CASA as well in 2014. We still consider that RWAs are at a very low level today. We have room to increase the RWAs in order to sustain the business lines of CASA and still keeping it below the trend that we gave in the medium-term plan. Okay, the capital buildup question was actually just on Q4, where you had a EUR 6 billion increase in RWA, and that fully consumed the earnings. Yeah, that's right. But please keep in mind that the euro-dollar impact is quite significant in Q4 compared with Q3. It's something like EUR 1.4 billion RWA change due to the exchange rate. Thank you. Question from Jean-Luc Lepreux from Société Générale. Please go ahead. Mr. Lepreux, your line is now open. Now we move to Pierre Chedeville with Crédit Mutuel CIC. Yes, good morning. Most of my question has been answered, but a general question. I understand that you are very cautious regarding external growth, considering your recent setbacks in different peripheral countries. But when we look at your model, I think that one of the big success of your model is to develop revenue synergies between a network and your specialized businesses like consumer credit, insurance, asset management, et cetera. That is the heart of your model. But you are now in France in a very mature model, I would say, considering banking activities, and in Italy, you still have room to develop, but one day or another, this will slow down. I understand, of course, that external growth is not at stake from a short-term perspective, but considering what I've said regarding the heart of your model and also the building of the European Banking Union, don't you think that one day or another, and let's say within 2 or 3 years' time, you will not have to reconsider this strategic, I would say, idea that you don't want any more to buy external networks? Thank you. On this idea of external growth in comparison with the usual model of Crédit Agricole, and thank you for your appreciation of it, I think we cannot say that we do not do any external growth. For example, in Amundi, we have opened the possibility of doing it in some very strict conditions. We don't do whatever, wherever. We look very closely at some cases, and we are very attentive at what we can do. It's the mix that you've highlighted, retail banking network and specialized, and our international presence also, I think, is quite successful because we can see that we've been able to mix these capacities of contact with clients, of future activities that can be more developed and performing. To be successful in international networks, retail international networks, that is quite a different thing. Retail banking is, how could I say, is almost like a foot soldiers army. They work in the shadows. They have to be very active on the ground and know it perfectly. When we are successful in one country, that will be with a certain culture, language, and it can be difficult, even if you have very good managers for retail banking in France to copy that in Germany, in Spain, or further in other geographies or regions. Because the language, the culture can be a handicap that will make it more difficult to really carry forward your men in this exercise of management. I am not saying that will never happen, but I am just saying it is not in our outlook in the short term. But we have done something with Amundi. We will now move to Federico Salerno, Deutsche Bank. Please go ahead. Good morning, everyone. A question on dividends, I am afraid. In previous occasions, you mentioned the need to start repaying the Switch transaction in 2017. Was that a consideration you had in mind when deciding to still have a scrip option this year and will you look at it next year? Thank you. I never said that we need to repay part of the Switch. I never said that. I just said that we have the possibility, according to the contract with the regional banks, to dismantle one part of the Switch starting in 2017. But I did not mention any need to do so. So it will be a discussion between ourselves and the majority shareholder, and to see what are the benefits of Switch in terms of revenues for the regional banks, and the benefit of Switch in terms of capital position for CASA. This decision has not to be taken before the end of 2016, so it is not on the table today. Quite simple, in fact, for CASA. In 2017, we will look where we are in CET1 and solvability, and the price paid for the Switch, the cost of the Switch, and we will see that if the repayment approach is interesting as far as its impact on expenses, we might do it. But we will see as and when time is right, and depending, based on several. Very clear. Thank you. We will now take a follow-up question from Guillaume Tiberghien from Exane. Please go ahead. Yes. Hi. Follow-up on the Caisses Régionales' revenues. Again, in Q4, if you factor all the one-offs or lumpy year-on-year comparison that you gave, they seem to have had, once again like in Q3, a pretty poor performance of the income on their own capital that is placed in various instruments. So can you maybe give us a guidance for full-year 2015 about whether we should expect that to be a big negative again year-on-year, or whether it can stabilize at the current level? The second one is with regard to switch number one. My understanding is that it is more complicated to remove than switch number two, and it was set for 15 years. Can you explain to us why it is more complicated to remove? Okay. On your first question, in 2014, the Caisses Régionales have dramatically improved their LCR position, and the management of the LCR has something to do with the revenues coming from the portfolio. We do not see such an impact in 2015, because most of the roadmap is now behind us now. You are right, there was some kind of negative impact in 2014, but I do not forecast such an impact in 2015. For your second question, switch one and switch two are rightly differentiated from a legal point of view, because the underlying risk is not the same for the Caisses Régionales. Right? They asked the possibility to dismantle switch two before switch one because the underlying risk for switch one is their own value. So they know very well the risk. They have no question about the value of their own business. That is why it is a long-term capital instrument compared with insurance. That is why it has been dealt differently from a legal perspective. Question, Guillaume? Yes. Thank you. Any other questions? Are there any other questions? We have another question from Flora Bocahut from Deutsche Bank. Please go ahead. Yes, thank you. Good morning. I have two questions, then I have a clarification or a request, if I may. The first question is on capital, on the Danish compromise. I think you have guided in the past for a potential impact if it was to be removed of 250 basis points for CASA and 80 basis points for the group. That is with the Switch being maintained, if I understood correctly. My question would be, if there is a regulatory change on that one day, is there any mitigating factor that you could use on top of the further leverage of the insurance business? Because I think there is not much more you can do on the leverage. The second question is on capital again. It is regarding the unrealized AFS gains that you have in your core Tier 1 ratio at CASA. I may be wrong, but I understand from your financial reporting that you have close to 150 basis points of core Tier 1 ratio coming from such gains. My question would be whether there is any way for you to secure part of these gains or whether they will reverse at some point when we see rates rising, although I do acknowledge this is not expected for the very near future. The small request I would have is on the leverage ratio for CASA. First of all, thanks for communicating that number for the first time. I think you mentioned on the call EUR 950 billion of leverage exposure. It would be great if you could give us the details. I think you also mentioned EUR 40 billion of Tier 1, and I don't reconcile that number, because for me, the Tier 1 ratio of CASA fully loaded is actually EUR 35 billion. Is the leverage 4.2% actually a phased-in number? Thank you. I will answer your last question first. Yes, it's a phased-in leverage ratio. Regarding AFS gains, 150, we don't discuss exactly the figures, but yours is above mine. How to secure that, I don't think it's feasible because most of those portfolios, we have that, we hold them for LCR reasons. The very same day we crystallize the gains, then we have to repurchase new bonds, so there is no way of crystallizing the 100 and boom, boom, that you gave. Regarding the Danish compromise, you rightly said that the impact would be in the region of 250 basis points for CASA and in the range less than 100 basis points for the group. I don't know exactly what is your question. But as Jean-Paul said, we cannot manage the banks with ifs every time. Today, we continue to build up our capital position. It's a kind of balance between RWAs increase, retail earnings, and the dividend policy. As I said before, we don't intend to increase the leverage of insurance. That would be sound. But we have other ways of designing of the Switch if needed. But it's not our alternative today. Yes, I'd like to clarify that I tell the authorities regularly that permanent developments on ratio development should be calmed down and attenuated. If we want the economy to grow again, if we want some sort of balance and stabilization, then banks should also stabilize. Let's stop every year sort of asking more and more questions. There are important debates for European banks and the European Central Bank in order to explain this Danish phenomenon, which have a raison d'être. We need to deal with things seriously and deal with things as quickly as possible in order to avoid talking too much about it. All the states of the Eurozone, in fact, the majority of those are affected or implied by the Danish compromise. If it happens, it will be over a long period. I'm not sure it will happen, but it certainly leads to very interesting debates between all of us. Thank you. Thank you. That's very clear. If I may just follow up on the Danish compromise and ask the question a bit differently. You may have seen that one of your competitors in Europe recently made a change in the structure of its insurance capital. In particular, one thing they did is they reallocated some of the excess capital they had in the insurance into the bank. Is it something you could do, and could you provide us with the Solvency I number for your insurance business, please? The insurance ratios in the Solvency I, but we haven't planned such a move today. Thank you. Are there any other questions? Okay, well, thank you very much and have a lovely day.