Crédit Agricole S.A. (EPA:ACA)

Earnings Call: Q4 2015

← View all transcripts

Feb 17, 2016

Good morning, everyone. Good morning, ladies and gentlemen. We are just starting this meeting. Philippe Brassac speaking. I am very pleased to be with you this morning. Mainly, I hope that it will not be too difficult for you to understand me with this dramatic French accent that is mine for more than 55 years. Well, mainly, anyway, I would like to thank you for attending this presentation for our main results for 2015, probably mainly for the explanations about this important operation that we have just launched to simplify the financial organization of Crédit Agricole Group. You know that we have just launched this operation since the day before yesterday with the boards of directors of each Caisse Régionale and the board of Crédit Agricole S.A. yesterday afternoon. First of all, let me place our results and the transaction we are presenting today within the framework of the general policy of Crédit Agricole Group. That means the policy which are conducting, obviously, over the long term. We would like to tell you that there are three main parts to that global policy. The first part is prudence. The first part is prudence because we know that our environment will continue to present systemic threats. Those threats, of course, by their nature, are very difficult to be predictable. What does it mean on a concrete point of view? First of all, we want that the solvency of the Group will always be in line with the highest benchmarks. You have probably read we are at end of 2015 at 13.7%. It is really included in our global policy. Secondly, we have decided, we did choose to be a universal bank. That means that we do not want to specialize in our businesses, on the businesses that generate very high immediate returns. It is really a long-term choice. Third point, we are aiming for consistency in our results rather than just maximizing them. Just an example, this is why we are keeping for several years our market value at risk levels very low. Fourth, we regard compliance as a strategic investment and not an obligation to be minimized. Fifth point, finally, we are giving priority to organic growth. The first part of our global policy is prudence. The second part of the policy is to carry out all those transformations of models that are necessary to adapt ourselves to the multiple changes of our environment. Two main works. First of them, we are going to lower all the break-even points of our businesses, because, of course, we need to factor in the long-term reduction in margins caused by the low interest rate environment. Second point, naturally, we are factoring the digital revolution into all our organizations and all our distribution models. Third part of our global policy is to take full advantage, I would like to add once again, of the Group's collective power, of the Group's collective synergies, of the Group's collective energy. The Group's operations have become divided too much into silos today, we never decide this, but it is just like this. I would like to say so much the better, because now by harnessing our collective power, we can unleash massive potential synergies in terms of cost, in terms of revenue, in terms of investments. That is why I do tell you that focusing on organic growth is not really a constraint for us. I would like to explain you that it is against this backdrop of this general policy that we have just achieved one of the biggest profits of our history in 2015, with net income group share of over EUR 6 billion. We have confirmed our status as the French bank with the strongest capital position, with a Core Tier 1 of 13.7%. For CASA, as you probably know that the net income group share was over EUR 3.5 billion in 2015, up 50% compared with 2014, and the Core Tier 1 ratio rose to 10.7%. This will allow us to pay a dividend of EUR 0.60 per share, up 71% compared to 2014. At the same time, you know that this morning we have decided to end this paradox of having one of the strongest capital positions of any bank in Europe while giving the impression that our listed structure had a weak capital base. To address that paradox, we are conducting a radical simplification of the Group's capital structure. Using, we can say that the Regional Bank's financial power to improve the provincial position of Crédit Agricole S.A. and mainly to get that this solvability of Crédit Agricole S.A. can be instantly, absolutely normalized. What does it mean? I can tell you this morning that the target for Crédit Agricole S.A. on CET1 for the whole term of the new MTP will be of 11%, and I can tell you, I'm very pleased to tell you that this morning that this target is already achieved on a pro forma basis at the 1st of January of this current year. As you know, CASA is not systemic. That means that this 11% ratio is therefore 150 basis points above its Pillar 2 requirement, and I would like to tell you very simply that capital is no longer an issue at Crédit Agricole S.A. Then we shall have the ability to present an MTP with a return on tangible equity target for Crédit Agricole S.A. that would be maintained above 10%. To resume this operation, we think that CASA will now be an easily understood universal bank share operating in all the businesses its customers need, with a largely retail bank risk profile. Its aim is to set realistic and attainable targets, to record consistent and robust results, and to remunerate its shareholders through a policy of paying out 50% of its net income group share as cash dividends. We believe, we hope, that in a risky world, Crédit Agricole S.A.'s profile should be attractive for investors. As you can easily understand that this transaction is a major stage in the Group's transformation. After having opted for a single chairman for Fédération Nationale, SAS Rue La Boétie, Crédit Lyonnais, and now Crédit Agricole S.A., we are in the process of recruiting a Group Chief Information Officer for all the Group. We also plan to eventually create a Group human resources function. As you can see, the Group is becoming increasingly connected, and Crédit Agricole S.A. increasingly integrated. Last on this operation, in financial terms, I would like to highlight a very specific point. This simplification will mean, of course, that the regional banks are no longer accounted for under the equity method. But we have reduced the dilutive effect, and it will be offset by increased commercial and cost synergies, which we shall unveil on March 9 as part of our Ambitions 2020 plan. I would like to highlight too, that for Crédit Agricole shareholders, the transaction probably comes at a very good time in the company's history. As you know, the regional banks have already achieved very high levels of profitability, and now they will be more than ever, probably, able to focus on winning new customers, on building market share, to resume, to increase their level of activities, and you perfectly understand that this will be extremely beneficial for Crédit Agricole S.A.'s business line. While, as you see, our results and this reform show that we are taking a resolutely proactive approach based on the confidence we place in the relevance of our models. I would like to end on this point. What are the main models of Crédit Agricole Group? Firstly, as regards the Group architecture, you know we decided in 2010 to be this universal customer-focused bank. What does it mean? That means that we want to be a universal customer-focused bank because, first of all, we did the choice of being universal. We want to master all the businesses required to serve the financial and wealth needs of our customers. But it also confirms that we want to combine, to assemble all of this expertise, these skills, this know-how, in a close customer-focused way as part of an all-embracing long-term relationship with customers through our unique retail banking network. To resume this point in a very simple sentence, the universal customer-focused bank means offering a global service at each local level. Secondly, as regards our new distribution model, I would like to highlight that we are currently transforming all our branches, all our traditional branches, into what we are calling full multi-channel branches. Digital technology, of course, represents a turning point in the history of banks. But digital doesn't mean online banking. We, too, have an online bank that is called BforBank, and we shall develop it. But online banking is a single-channel model, whereas the world has become totally multi-channel. The future is the full multi-channel branch. It means that all customers must be able to choose how they wish to do their banking in person, on the telephone, or digitally without being fenced in a silo. Whatever channel the customer choose, it is always the local commercial team which will provide overall customer support and the human touch. All our branches will be both 100% human and 100% digital. In Crédit Agricole Group, the offer is all-inclusive. Just an example to be more concrete. We have just launched a few days ago a new project offer that is called Frezi. It is a very practical example of this model. Frezi is very simple. It's absolutely digital. It's entirely free of charge, but Frezi is offered within our new branch model. And for customers, therefore, it can very easily be extended to the full range of products and services. Last, on this model, I would like to highlight for you that this transformation has been underway for over 2 years, and it is up and running today in many branches of Crédit Agricole Group, and probably we will announce the next 9th of March that this transformation will be completed by 2017 or 2018. Finally, we are convinced that our relationship model is the right one, and we are just about to hugely reinvest on it. I would like to resume it by the way I'm just trying to explain. Our clear aim is to offer the highest level of personalization for all, the highest level of personalization for all. Because, of course, you perfectly know that customers don't just want convenience and modernity. They also want us to support them in difficult times. They also want us to provide loyal advice to help them make decisions in a complex and uncertain world. Supporting customers in difficult times means making professional commitments. That means practical and understandable way to helping customers during times that should no longer be regarded as life accidents, but simply as part of life itself. Divorces, losses of job, unpaid bills, sudden falls in business levels. Loyal advice means recognizing that everyone's future has become much more complex and much less predictable. It means that we need to move from wisely prescribing solutions to adopting a method that allows all customers to exercise their freedom to determine their own future. Once, of course, they are given the technical information they need. Let big data analyze the data of the past, and let people decide their future. We are really setting ourselves an objective for revolutionizing the advisory approach. As a bank that is both 100% human and 100% digital, we have the desire and the industrial expertise to offer the highest level of personalization for all. This is the aim of the customer project that we will announce on March the 9th, alongside the presentation of our Ambitions 2020 medium-term plan. Thank you for your listening for this introduction, and now I will ask Xavier Musca to give you more details on the transaction aimed at simplifying our capital structure, and then I will ask Jérôme Grivet to present to you our 2015 financial results. Xavier. Thank you very much. Xavier Musca speaking. I would like to present you briefly the transaction we have presented yesterday to our board. You remember that on the 19th of January, we confirmed the fact that we have entered into discussion with the Crédit Agricole Regional Banks in order to transfer to them the CCI-CCA held by CASA in the Crédit Agricole Regional Banks. This week, major steps have been achieved in this direction. On Monday, 39 Crédit Agricole Regional Banks' board have approved the transaction. Yesterday, CASA board has also approved this transaction, and I have to stress that only independent directors voted in CASA board. Obviously, this transaction has been before presented to both Banque de France and ECB, our supervisors, and the comfort we received from them allows us to present to you this transaction today. What are the next steps? Well, first of all, we will have to present the transaction to the French market authorities in order to get clearance on the fact that we do not need to make a public offer to restore Crédit Agricole S.A. shares. We are quite comfortable based on the views received from our lawyers in this respect. We also have to present the transaction to staff representative bodies. That is mainly formal. We do not expect any difficulties. I have to stress with great satisfaction the fact that all staff representatives, which are part of our boards, both in Regional Banks and in CASA, have approved this transaction without any doubt. That is a very positive element also in my view. We expect the transaction to be concluded and completed in the third quarter of 2016. We expect it in June or July. If I want to describe the transaction, I would do it in the following way. The Regional Banks are creating an SPV, which is called SACAM Mutualisation. This SPV is a very simple mechanism. It is a completely passthrough vehicle. On the liability side, it is very simple, 100% capital put by the Regional Banks. On the asset side, CCI-CCA, which are today in CASA balance sheet and which will be sold to this SPV. The price of the transaction is based on the equity capital estimated at year-end, which means EUR 69 billion. We derive from that the value of the CCI-CCA which are in the scope of the transaction, EUR 17.2 billion. On top of that, we received a 5% premium, which leads to a price of EUR 18 billion. This price is on a pro forma basis, which means that it will be adjusted depending on the date of the transaction, which means that if we suppose the transaction to be completed in June or July, this will lead to an effective price of EUR 18.5 billion. At the moment the transaction will be completed, obviously, the Switch will cease to exist because there is no reason to maintain it, that is for sure which supposes that at the same moment, we pay back to the Regional Banks the EUR 5 billion deposits, which is a guarantee linked to the Switch mechanism. What do we expect from this operation? First of all, and that is a very strong message which has just been delivered by Philippe Brassac, we expect a decisive simplification of Crédit Agricole Group structure. Very often we were criticized because of the very complex structure in which CASA was at the same time the subsidiary of the Regional Banks and the owner of 25% of the capital of the same Regional Banks. This is definitely clarified, and that we expect it to be received as a good news for both the market and for the supervisor. Obviously, we know the supervisor appreciate the simplification. Clearly, not only simplifies the picture, but also it improve the quality of capital. Again, we often urge questions, remarks, criticism on the Switch mechanism. A lot of people saying that maybe at some point in time, the central bank will oblige us to dismantle it, and they question us on the way we envisage to replace this very important mechanism as it was weighting 170 basis point in our fully loaded CET1 ratio. Obviously, this issue is resolved by the transaction itself. One of the interesting by-effect of this transaction is also that we get clearance on Switch 2, and we are quite comfortable in saying today that we will maintain Switch 2, which obviously is a good news for CASA profitability. Not only this transaction improve the quality of capital, but it rise the level of Core Tier 1 ratio by 41 basis points, which leave us at the level of 11% on a pro forma basis on the 1st of January. 11%, I remind it to you, is a level we fix as a target for year-end, and we obtain it today immediately. That confirm the very strong capital position of CASA. I would like to insist on the point which was made a few minutes ago by Philippe Brassac. 11% is not only the objective for 2016, it is the objective for the whole period of the medium-term plan. We received, you remember that at the end of last year, our Pillar 2 from ECB, which is also linked to our MDA, it is 9.5. It is not set to go up. We are not a systemic institution. It means that above and on top of this 9.5%, we have 150 basis point of management buffer. We consider that as a very great level of security, of comfort. On top of that, you have to remember that we are part of a group which is extremely well capitalized, 13.7% at the end of 2015. We will come back later on this point. A group also which is from now on fully compliant with TLAC requirements. A very solid position in capital terms which will allow us, and that is the very important benefit of this operation, which will allow us to return to cash dividend payment earlier than initially scheduled. We are able to confirm on this basis that we will maintain our payout ratio at 50%, but above all that as of 2016 results, we will pay our dividend only in cash. It means that we will eliminate the dilutive effect of paying scrip dividend, and I hope that will be received as positive by investors. On top of this positive effect, I have also to highlight the fact that the transaction will allow to deleverage our corporate center, which is, as you know, quite significant for the time being. Maybe I need to give you some explanation on the way we will proceed. First, we will make an extra profit on selling the CCI, CCA to the Crédit Agricole Regional Banks around EUR 833 million. This will be reinvested in balance sheet optimization operations, and that will lead to a reduction on the financial costs for the corporate center, which will be around EUR 165 million. On top of that, we are receiving from the Crédit Agricole Regional Banks, you remember that, EUR 18 billion. We pay back then EUR 5 billion. The net flow is EUR 13 billion. On the EUR 13 billion, we use EUR 11 billion to make a loan to the Crédit Agricole Regional Banks in order to help them constitute the capital of the SPV. This EUR 11 billion will be lent to the Crédit Agricole Regional Banks through a loan fixed rate 2.15%. That will lead to, again, an increase in our financial revenues by EUR 261 billion. On top of that, obviously we will not pay in the future the Switch 1 cost, which were around EUR 460 billion. All these effects to which you have to deduct the fact that we will not receive the payment of CCI dividend, and also taking into account tax effect will lead to an improvement in cash flow of EUR 300 million per year on a recurrent basis. All these effects we see are very positive long-term effects. If we look now at this transaction, taking into account the effects they have on the different part of the group, you see clearly that first of all, the transaction is completely neutral at group level. It's neutral on net income, it's neutral on our prudential ratios, it's neutral on liquidity position and so on and so forth. It's completely an internal business. Second, as I mentioned it has a positive impact on the capital position of CASA. It has a positive impact on the cash received by CASA. Obviously, the negative impact of this transaction is the fact that we will lose the results coming from the Regional Banks, which are equity accounted as you remember it. The net effect of this operation will be on net income, negative of around EUR 470 million, but this negative effect will be partly, I would say, filtered when you look at the impact on earnings per share through the positive effect coming from the fact that we are able to pay cash dividend in the future. All in all, the effect of this operation will be obviously dilutive, but this dilutive effect on an EPS basis below 9%. If you look at the operation from the angle of the Regional Banks, obviously, they will have to make quite a significant effort, in particular by capitalizing the SPV in order to buy the CCI, CCA. This will reduce the amount of capital they have by 300 basis points, but as you know, they are extremely well capitalized and after this operation, on a pro forma basis, their level of capital will remain extremely comfortable at 17.3%, and that is not obviously an issue. On this very complex presentation I am presenting to you now, you see the different effects. I won't enter into the details. You see, first of all, the net income group share effect, which is negative of EUR 467 million, but you see also the benefits we are deriving from this operation on a cash basis. It is written at the bottom of the table, which is presented here. This chart also gives you some color about the one-off effects to be expected in 2016. I won't comment then in depth. You see all in all, an operation which is, in our view, extremely positive, but which is also extremely consistent because it stresses all the qualities we expect to be demonstrated in the future. A group which is mainly focused on very conservative business with resilient results, with cash dividend, and so on and so forth. And a way to illustrate that is to give you some information about the new activities mix, which is translated in our stock after this operation. Obviously, it is not fully illustrative. You will have to wait the 9th of March. At the moment, we will present our Ambitions 2020 medium-term plan to get some more information about our activities mix and the way we see it to develop in the future. Just on a pro forma basis, I would like to insist on what will be tomorrow after the transaction, the picture we are giving to the market through CASA share. You see first, and that is the most impressive effect, the share occupied by asset management and insurance, 43%, which is quite significant. You see also that there is around 20% coming from retail banking, mainly France, LCL, and Italy, Cariparma, so 20%. You remember that Cariparma, our Italian subsidiary, is quite a good bank, again, resilient with a low level of risk and a sustainable return. Specialized financial services will represent 12%, and CIB 25%. All in all, businesses which are mainly related to retail activities or which are extremely, I would say, conservative and resilient. Again, as mentioned by Philippe Brassac in his introduction, we want to manage our CIB with a low level of risk in a very conservative manner. The whole picture of the activities mix is, in my view, fully consistent with the decision we have taken and also with our commitment to return to a cash dividend policy. I have achieved this presentation, and I think that I will immediately give the floor to Jérôme in order to present you the results. Thank you, Xavier. Good morning to every one of you. As it is now a little late in the morning, I will try to be as quick as possible in the presentation of the results in order to leave you enough time to ask your questions, be it on the operation or on the results. Let us now start with the income statement of the group. I am on page 28 of the slideshow. Excuse me, it is 16. We do not have the same page number on my paper document and on the slideshow. Just at group level, what you can see is that net banking income year-on-year is increasing by more than 5%. Costs, excluding Single Resolution Fund contribution, are up 2.7%. Cost of risk is almost stable if you compare this year to the previous year, around EUR 3 billion. As Philippe said, the net profit is a little bit above EUR 6 billion, EUR 6 billion and 43 million, up nearly 23% year-on-year. If you take a look at the figures of the quarter, net banking income is even more significantly up. I will comment on this one a little bit later on. Plus 9.6%. Costs are also up 4.4%. Cost of risk is up 37%, I will also comment this one. The net profit of the group is EUR 1 billion 564 million, up 16%. If I go now to some information about the global financial structure of the group, as already said, and it is important to keep it in mind, the fully loaded Common Equity Tier 1 ratio for the group stands at 13.7%. Again, it is one of the best in class in Europe with this level of CET1 ratio. For Crédit Agricole S.A., this is excluding the transactions that I just presented, we stand at 10.7% at year-end. Again, some very strong positions in term of total capital ratio. If I take the example of the TLAC ratio, at 19.7%, excluding any element of senior debt, we are already above the future, the coming 2019 requirement. Leverage ratio, we are also well above the 3% threshold, be it at the group level or at the CASA level. Finally, the conglomerate ratio, which includes the solvency requirement for the insurance activities, is far above the 100% threshold because we are nearly to 200% at group level and at 250% at CASA level. I can add that in terms of liquidity, our position is also very strong. We have a surplus of long-term funding above EUR 100 billion, and we have liquidity reserves amounting to EUR 257 billion. Finally, the return on tangible equity for 2015 for Crédit Agricole S.A. stands at 10%, and if we take the underlying P&L, it's even a little bit above at 10.4%. Net asset value per share is EUR 18.7, and the net tangible asset value per share is EUR 12.5. Let's now take a look at the income statement of Crédit Agricole S.A. For the whole year, the net banking income is up 8.5%, operating expenses up 3.2%, cost of risk stable, EUR 2.293 billion. Just one comment on this figure. Inside this figure, you have EUR 500 million of litigation costs. You remember that in the second quarter, we took a EUR 350 million provision to complete and to finalize the OFAC issue. On the fourth quarter, we added up EUR 150 million of general litigation provision. The income before tax is up 50%, close to EUR 5 billion, and finally, the net profit, net income group share for the whole year is at EUR 3.5 billion at 50%. If I take the figures of the quarter, you will notice the very sharp increase of the NBI, plus 10.6%. This figure includes 163 complement of price linked to the sale of Emporiki to Alpha Bank. This is accounted for in the net banking income line. Operating expenses are up 4%, excluding Single Resolution Fund. Cost of risk is up 23%. It includes the EUR 150 million provision I just mentioned for a general provision for litigation. Finally, the net profit stands at EUR 882 million, up 27.5%. Let's now drill down a little bit on the revenues, and we are focusing on the revenues of the business lines, excluding the elements of corporate centers and the restatements linked to the DVA, the CPM, and the issuer spread. So we concentrate only on the pure operating revenues of the business lines. They are up 4% year-on-year, and this is mainly due to the excellent performances of the savings management and insurance division. You can notice also the strong reduction in the corporate center's negative contribution to the revenues of the group. If we now zoom to the expenses, and again, I will concentrate on the expenses of the business lines, operating expenses of the business lines, outside, I would say, external factors, they are up 1.1%. The highest increase in the growth figures is linked to the Forex impact to the Single Resolution Fund and the new taxes that we had to pay for in 2015. You can also notice that the cost of the corporate center decreased a little bit between 2014 and 2015. In terms of cost of risk, you have here a series of annualized figure over four rolling quarters. You see that at group level, we are stabilized at a very low level of 30 basis points, and at CASA level, we are a little bit above, around 41 basis points. Regularly decreasing. I will just add the fact that at the regional banks level, the coverage ratio is still over 100%, and at Crédit Agricole S.A., it stands at 71.5%, more or less the same level as we had in December 2014. If you look at the cost of risk of the different business lines of Crédit Agricole S.A., you can see that it's very stable at a very low level in the retail banking activities, be it for LCL or for the regional banks. You see that it is also the case for the financing activities at the CIB. For Cariparma, it is regularly decreasing, and it stands now at 117 basis points. Finally, for the consumer credit activities, it's been steadily decreasing with, in particular, this quarter, a sharp fall at Agos in Italy. Let's now look on the main events of the different business lines of CASA. Let's start with the regional banks. What we can mention on this slide is that the commercial activity was quite satisfying with, for example, loans outstanding up nearly 3% year-on-year, and a very good activity also in additional services like insurance, with a number of insurance contracts in stock at end 2015 up nearly 4%. Revenues globally were up close to 1%, and of course, what you can see is that we had an interest margin slip of nearly 2%. That's, of course, due to the specific context of interest rates in France. On the other hand, we have a fee income, which is very dynamic, +5% year-on-year. Operating expenses are a little bit up, linked in particular to some investment in digital projects, and the cost of risk, as already mentioned, is well under control. All in all, the net contribution of the regional banks to the results of CASA was a little bit above EUR 1 billion. For LCL, the commercial momentum is even stronger with a very significant growth in credit granting. For example, in home loans, the outstanding is up 7.4% year-on-year, with a significant slowdown in redemption, renegotiation, and early repayment in the last quarter of the year. I can also add that this last quarter, for the first time since probably eight or 10 quarters, we have seen a little increase in the customer interest rates on new loans. The dynamic is also very good in the lending to corporate and small businesses at LCL. The results were affected by the low-rate environment, of course, obviously, with revenues down 2.8%, even though the commission revenues were up 2.5%. The cost of risk is low. All in all, the net contribution of LCL to CASA's results is more or less stable on the whole year at EUR 565 million. For Cariparma, it's more or less the same story with a dynamic of loans, which is concentrated actually on home loans, +5% year-on-year inside a total outstanding of loan, which is only +1%. The asset collection remains very dynamic, +4.6%, with a very good performance again of the life insurance business and savings management business. Net income group share of Cariparma for the whole year is up 19%, thanks to an increase in the revenues, +2%. Expenses are kept under control, and the cost of risk, as I already said, is continuing to decrease again this year. I have to mention that the fourth quarter of the year was affected by some specific items. You remember that Cariparma, as all other Italian banks, had to contribute to the saving of and to the rescue of four Italian banks. This is a cost of EUR 35 million for Cariparma. Outside those elements, the net income for the quarter would have been up also as the rest of the year. For the rest of international banking activities, I think the situation is very clear-cut. We continue to manage those businesses in order to ensure a surplus of local funding as compared to the credit book. So we have a total surplus for the four main networks of above EUR 2 billion at the end of last year. The net contribution of these activities to the profit of the group is now very significantly positive, EUR 73 million for the whole year and EUR 17 million for the last quarter. It's a multiplication by more than two as compared to the same quarter previous year. Asset Management. Amundi, as you know, has published its results last Friday, so I will not comment those results very much in detail. What you have to keep in mind is the very strong inflows, net inflows of nearly EUR 80 billion for the whole year, and it's well-diversified alongside the two main segments of customers of Amundi, the institutional segment and the retail segment, through the many partnerships that Amundi has with the banks of the groups, but also the banks outside the group and especially Soc Gen retail banks. The contribution to the net result of Amundi is close to EUR 400 million for the whole year, up 8.8%. Insurance has also had a very good year, both in terms of dynamics, commercial dynamics, and in terms of financials. In terms of dynamics, strong premium income, EUR 31.2 billion in total for the whole year, up 3.2%. This is the case for the savings and retirement activities, of course, which are up 2.6% year-on-year. We continue to improve the share of unit-linked product inside these activities. Death, disability, health, and creditor insurance, the premium are up 5.5% year-on-year. We managed to successfully launch the new activity of Group Health and Protection business with now at year-end, more than 200,000 people insured. P&C had also a very dynamic year, especially in France, with premium up 5.4% and a net increase of the number of policies close to 500,000 net new policies. The net profit of the division is up 13%, close to EUR 1.2 billion for the whole year, and reaches EUR 320 million for the quarter. Private Banking has also had a very good year. This is the eighth consecutive quarter of positive inflows, and net profit is multiplied by close to four as compared to last year, to the previous year, 2014. You remember that in 2014, we had to book a litigation provision that was used in 2015 in order to settle the US program issue. This explains partly this very good financial performance, but the sales performance was also very dynamic. CACEIS, we have a very solid level of activity, and CACEIS managed to gain new customers. Indeed, the interest rate environment is challenging for CACEIS, but thanks to very good cost control, the net contribution is up for the whole year. As far as the fourth quarter is concerned, there is a specific effect linked to a different method of accounting for some tax, so the net result of the fourth quarter is not relevant. Specialized Financial Services, again, a strong business momentum for the consumer credit and car credit activities. You remember that CACF is working through different channels. It is working through its own balance sheet, but it also is working with many different partners, be it in car financing joint ventures or, of course, with the networks of the group. All in all, the assets managed by CACF increased by 3.5% year-on-year, which is a very good performance. As I already said, the level of the cost of risk has significantly decreased, and it is especially the case at Agos. All in all, considering all those parameters, the performance of CACF on the whole year is up 75% at EUR 367 million, and it is also very significantly up for the quarter, above EUR 100 million. It is a multiplication by more than two as compared to the fourth quarter of 2014. Leasing and Factoring, also a very good business momentum. The element of productions were up more or less 10% on the last quarter as compared to the fourth quarter of 2014. Thanks to a good cost control and cost of risk control, the net profit is also very significantly up on the quarter and on the whole year. Finally, and lastly, Corporate and Investment Banking activities. Globally, we had a rather dynamic year in terms of revenues, with revenues up 5% year-on-year, with a very good level of production and activity on our traditional strength, notably in the structured finance space, but also in some capital market activities like Forex and interest rates. The commercial banking had a more difficult year due to some unfavorable factors. Expenses are under control if you exclude some specific costs, which are linked either to the Single Resolution Fund or to a sharp increase during the last quarter of the bank levy in the U.K. As far as the cost of risk is concerned, the specific element of the year was the EUR 350 million provision that we booked in the second quarter. Besides, the cost of risk is more or less stable and even a little bit decreasing, actually. An exceptional item of the quarter was also the impairment of the rest, the residual value of CACEIS stakes in UBAF. This is a hit of EUR 76 million in the equity accounted entities. All in all, the net profit of the division for the whole year stands at EUR 735 million. But if we restate this level from the impact of the OFAC provision, we are a little bit above EUR 1 billion for the whole year, only down 11% as compared to the previous year. Let us drill down a little bit on a subject that has raised some concern lately, which is the oil and gas exposure. What I could say briefly on this issue is that the oil and gas portfolio of CACEIS is a portfolio of a very high quality. It is a very resilient portfolio. Maybe two or three elements on that. First element, 84% of the exposure at default are investment-grade exposures. The total exposure at default amounts to $27 billion. We specify that we present this figure in dollars, considering this is the denomination of most of our exposures, and again, 84% of this exposure is investment-grade. The second element is that this exposure is spread around seven different categories of customers, and only two of those seven categories of customers are customers which are impacted by the decrease in oil price. This is obviously the exploration and production segment, and this is also the oil and gas services segment. But these two segments represent only 21% of our exposure. Last point, the total exposure at default decreased by 8% between December 2014 and December 2015. Let us now go quickly through some slides on the financial structure of the group. First element on the capital ratios of the group and of Crédit Agricole SA. As I already mentioned, our total ratio are very solid, 19.3% total capital ratio for the group, and even a higher level of 20.3% for Crédit Agricole SA. CET1, we already commented this one, 13.7% at group level, 10.7% at CACEIS level, increasing significantly as compared to either end of 2014 or last quarter. Finally, the leverage ratio well above the minimum indicative level. The TLAC ratio, I already mentioned it, so we can go a little bit quicker on this slide. We already meet the 2019 requirement. I think this is very important to keep that in mind, and we meet this requirement without having to rely on any element of senior debt, eligible senior debt. Long-term funding sources, as I already mentioned, we have a surplus of long-term funding as compared to stable assets, which is in excess of EUR 100 billion. Liquidity reserves. Our liquidity reserve cover 2.5 times the gross short-term debt of the group. Funding sources, I think we have proven in 2015, and again in the beginning of 2016, our ability to access to diversified market funding sources. In 2016, the group globally raised more than EUR 25 billion of senior debt through the different markets and the different channels it uses, with very diversified categories of customers. We also have very diversified short-term funding sources, and we organized and put in place the first true sale securitization of French home loans last October for an amount of EUR 10 billion, which is fully retained for reserve purposes. At the Crédit Agricole SA level, we had last year a EUR 10 billion medium and long-term funding program. This EUR 10 billion program was reached and even exceeded at 116%, with EUR 7.8 billion equivalent senior debt and EUR 3.8 billion equivalent Tier 2 debt. We continue to manage our subordinated debt in order to ensure its efficiency. Last point, we have for 2016, a EUR 40 billion medium- and long-term funding program. It is already completed at 20% because in the beginning of this year, despite market conditions which were challenging, we managed to issue an additional Tier 1 in dollar, $1.25 billion in the very beginning of January, then a covered bond of EUR 1.7 billion. I think this is done, and in order to leave the floor to the question, maybe I will stick to this slide, and let Philippe, if you want to conclude. Just to thank you, Xavier, and thank you, Jérôme. I would like to apologize because we have probably been a little too long. Just let us start with the questions. Once again, that is star 1 to ask a question over the telephone. Just maybe a very simplistic question. Considering the market cap of Crédit Agricole SA right now, let's say it is 22 with the share price going up today, maybe 23. In the position of Crédit Agricole Regional, they are going to buy 25% of their own shares for 18 billion. They could buy the remaining float for, let's say, 12 or something like that, even with a premium. What is the rationale behind that to get only a part of it for 18 instead of having all of it for maybe less than that? Second question is on oil and gas, some specific question there. If I am correct, but maybe that is a matter of dollar and euro, the exposure to service exploration and production slightly declined versus Q3. I am not sure it is true. Is it something we should expect going on like that? Do you expect to decline, to shrink further the exposure to this most sensitive part of the business? Second point there, all your competitors have released some kind of stress test on their oil and gas exposure. Do you have anything to comment on this? Thank you very much. Well, first, I would like to try to answer the first part of your question. Well, first of all, we never thought about how to list Crédit Agricole S.A., so this is not a question for us. We would like to explain to you, or to explain the same again, that this operation, first of all, is to get the Crédit Agricole clear, to be understandable, first of all, then to immediately normalize the solvency and landscape of Crédit Agricole S.A. This is absolutely not a question to be listed or not to be listed. We want to be listed. We are listed for now more than 15 years. I do think that this operation now get for all the stakeholders the clarity to understand Crédit Agricole Group and the comfort with the share of Crédit Agricole S.A., because now the target of solvency is achieved on the 1st of January of this year. So this is my answer for the first part of this question, and I would like probably for Jérôme to answer the second part of your question. Yes, on the oil and gas exposure, actually, the figures are not directly comparable as to one we published on the last quarter. What you can expect is indeed that we continue to decrease our exposures on the more risky part of the business. This is what we do permanently, and we permanently assess the situation of the different categories of customers we serve, and we adapt our credit policy to the economic situation of the different sectors. As far as the stressing of the portfolio is concerned, as every other bank, we of course stress frequently our portfolio, and we regularly update the parameters of our stresses. We think that the stress methodologies of the different banks are not very comparable. So we didn't publish the results or the parameters of our stress scenario. But we think that more objective terms of comparison like, for example, the level of investment-grade counterparties is a more objective term of comparison. But of course, we stress regularly our portfolio, and I can tell you that we stress both the price of oil and the duration of this situation. Thank you. Second question. Yes. Hello, everybody. This is Alex from Exane. I have two questions, if I may. The first one is on your comment on Switch 2. I'm just wondering if your capital position is strong in 2017, would you consider canceling also the Switch 2 or not? Second question is linked to the central body. I guess the question is, should we consider that at certain point you could transfer the central body to the new structure? Because I guess that as it is not a shareholder of Crédit Agricole, then there is no more need to have the IPS statute. The third question is directly linked to your comment on the CIB. It represents 25% of your revenues, of your profit, but consumes 43% of your capital. So I guess there is a kind of mismatch out there. Should we expect more deleveraging from the CIB? And the fourth question is regard to Cariparma and the cost of risk. Should we expect the cost of risk to continue to go down? I think that for the time being, your guidance was EUR 100 million per quarter. Is there any update on that figure? Thank you. You have different questions. Maybe I will start with the last one. I think on Cariparma, we think that the quality of the portfolio is still improving. What we see is that the rhythm of new entries in sensible exposure is decreasing. We probably will expect some further improvement of the cost of risk. But I don't want to give you today too precise guidance on this issue as well as on many others, because we don't want to unveil in advance elements that we are going to present on March the 9th. It's also probably the case of the answer we can bring to your question on the CIB activity. I think our projects on CIB as well as on the rest of the business lines are going to be presented and unveiled on our investor day on March the 9th. Do you want to take the one on the? Well, I shall try to answer the question about the central body. Well, if I correctly understood, you suggested a kind of new iteration of Hawk by the eventual transfer of the organ central body to the second. Well, I would like to tell you something very simple about this. You perfectly know our sustainable objectives. The management of Crédit Agricole want to get this group more collective. He wants to get this group more easy to be understood. He wants to get this group more maneuverable. And the operation we are presenting today is not only a major one operation, but it's operation that simplify the group, improve the financial position of CASA, and of course, anybody can understand that it opens up many future options. But let's take things one step at a time. I think this operation is very important. The objectives are very clear. The targets will be reached, and so I can repeat that. Please, let's take things one step at a time. To complement the answers on the Switch, I repeat what I have said. First of all, the Switch is, in our view, a very good instrument. It is of the benefit of minority shareholders. It lowers the cost of capital for us. We are aiming to maintain it throughout the next medium-term plan. I can confirm to you that we do not expect that our supervisors would, at any point in time, ask for dismantling of this very interesting and very positive mechanism. Thanks. Thank you. Next question. Yes. Good morning. Pierre Chedid, Crédit Mutuel. Just a follow-up question regarding Jean's question. What would you say to a shareholder of a Caisse Régionale who asks you, why do you pay 17 times the net income of the Caisse Régionale stake, when we all know that in the context of low interest rates, digitalization, et cetera, the average PE on this kind of transaction would be around, I would say, 10 to 12, maybe. I am not talking about the point of view of CASA, because you will say, I book it at the book value, it is an internal transfer. But if I am a shareholder of a Caisse Régionale, I could complain saying my management is buying a stake for a much higher price that I would have paid. First question, what would you ask to the shareholder of us? Don't you fear that there could be any complaints of the shareholders of Caisse Régionale? The second question is about Cariparma, but I would like to focus on the net banking income, because globally it was more or less a good year. But when we look at the quarterly sequence, we can see that the last quarter sees a significant decrease in net banking income. Is just this a seasonal effect or an effect base, or do you see there a growing trend for 2016 in a context, of course, of low interest rates? The last question would be, what could be in your view the impact for CASA, not for the group, but for CASA, of the substitution in the TLAC of senior bond not protected against 81. Could you think, because we can see that you have a very good position in liquidity, a very good position in TLAC at the level of the group, but also I guess at the level of CASA, because it's a consolidated situation, but this cost a lot in low interest rate environment. How can you improve that? Thank you. Well, I should try to answer the first part of your question. First of all, perhaps the English version is difficult for us to explain the regional banks, but of course there are no shareholders in the regional banks, stakeholders, we can say, of course. This operation is an operation where regional banks are buying their own stake. The proof has been done on the last 15 years. It was a very good stake. Because for Crédit Agricole, the stake has been bought about EUR 6 or EUR 7 billion in 2021, and now this operation is about EUR 18 billion. I do think all the managers of the banks, of general banks, do think it's a good investment for regional banks. It's a clarification for the group, it is a good investment for regional banks, and there is an advantage for regional banks to out of the Crédit Agricole share today that other profitability are very high today. They will be easier to focus their efforts on activities, on customers, on investments. I think on the strategic point of view, it's really a good political and financial investment for regional banks. Well, about Cariparma, Jérôme. About Cariparma, it is true that indeed the sequence of the net banking income decreased a little bit in the course of the year. Actually, what happened is that the comparison basis in 2014, especially for the last quarter, was very high due to very significant inflows of life insurance contracts on the fourth quarter of 2014. It is more a matter of a basis of comparison rather than a matter of trend. We see good elements in the commercial dynamic of Cariparma. As far as your question on the TLAC is concerned, I think we have to refer to what Philippe said in his introduction. We always want to be on the safe side. We want to be prudent, and we want to take care as much as possible of the interest of our different stakeholders, the equity holders of course, but also the subordinated debt holders and the senior debt holders. We prefer to use as much as possible all the categories of subordinated debt in order to ensure the holders of senior debt that they are not integrated in our TLAC ratio. We are going to remain on the safe side from this point of view. We will unveil more precise elements on the capital planning and on the TLAC planning again on March the 9th. To complete what Jérôme said on the regional banks, we have also to take into account the fact that all this has been reviewed by independent auditors. There were banks advising the regional banks. I would add two other elements. They have an interest in having a very strong CASA because they are the main shareholders, so there is an extra benefit from them, which derives from an improvement in CASA's position, as CASA, again, is their main subsidiary and also the provider of financial services used within their retail activities. If you look at the issue from their angle, they are in excess of capital, to say it very bluntly. This investment represents a return without any risk because it is a risk they take on them, which is above 5%. Is that such a bad deal? I don't think so. Let me add, if you want, just a political rationale that is very important and that allows me to explain the nature of Crédit Agricole Group. Crédit Agricole Group is not divided in two parts, regional banks on one hand, and Crédit Agricole on the second hand. Crédit Agricole is today, and will remain, all the business lines that are useful for regional banks. If we are easier in our NTP at Crédit Agricole for our business lines, it is good for regional banks. If Crédit Agricole will be able to promote a return on tangible equity above 10% on this NTP, it is good for the majority shareholder that are regional banks. I would like just to emphasize on this point that the group is more than you can imagine, very linked By political and business links. Yes, Tilmin from Natixis. I have a few follow-up questions. The first one is on the insurance business. I guess it is easy to get some very high level of entry fees when interest rates and market are up. Now that we are in the very low interest rate and with a very shaky market, I am just trying to get a sense of the evolution of the entry fees that you are getting out of your business. Should we expect that to impact the revenue line? Does it affect the kind of guidance of EUR 1.2 billion that you gave for 2016? The second point is regarding the Italian bad banks or the so-called SPV. Are you looking at that? Should we participate? What is your view of this regarding the management of your NPL? The other question is on the leverage ratio on the fully loaded basis. Could you just provide us the numbers, please? The last question is regarding the operation that is just announced, the disposal of the stake in Renoa Bank. Should we expect it to be a trigger to seal our threat going forward? A decrease, probably by 50, 25 basis points or more, or what is your view on that? Thank you. Well, I am sure on one point that for your first question, Jérôme is really seasoned enough to try to answer your question. About insurance, Jérôme. About insurance, your question is a very good question, of course, but maybe I will give you two elements of answer. The first element is that the biggest chunk of the entry fees in insurance are attributed to the distributor. I mean, to the network. It is almost not taken into account in the net profit of the insurance business. The second element of answer is more a matter of commercial policy, but I think that precisely at a period of time when the interest rates are low, it is relevant to maintain rather high level of entry fees. Because actually, a newcomer into the old portfolio of assets that has been purchased by the insurance company is someone who is going to capture part of the virtual capital gains inside the portfolio. I think it is relevant from the interest of the older policyholders to keep the level of the entry fees at a rather high level. So for the time being, I think we do not intend to reduce significantly the entry fees in the life insurance contracts. The last point maybe is that, again, I draw your attention on the fact that we have been developing the unit link products lately, and especially in 2015. About Italia, Xavier. We have not yet received all the appropriate information, which could lead us to say something about our potential participation in this operation. But I want to highlight that we don't see a sovereign concern as a crucial issue. We have one of the lowest level of impaired loans in Cariparma. We are making a lot of efforts in order to reduce them and to manage them in a conservative way. We have increased this quarter the amount of provisioning of these NPLs by one percentage point, which is quite significant. We have followed, during the past year, quite a conservative risk policy by moving our loans from SMEs to home loans, which are less risky in Italy, as you know. We are also improving all the procedure by which we recuperate our money on these NPLs. We don't expect that to be, for us, an element which drives our business in the country. We don't need it. We have one of the strongest position in Italy in capital terms. We will see whether there are extra benefits to be grasped from this operation. If it is the case, we will take benefit from them. But again, it is not a driver for our business. I just want to say that we hope that the situation will be clarified as quickly as possible in order to reinforce the banking activities in Italy more broadly. But again, that is not the issue for us. And your last point on the leverage ratio, I think you have all the required information in the slideshow. As I said, the leverage ratio for CASA is at 4.6%, and the leverage ratio for the group is at 5.7%. That's fully loaded? Yes, it's fully loaded. And your last question was on the SREP, if I understand correctly. You were wondering whether the European Central Bank is going to increase our level of Pillar 2. Well, no. And we don't count on that in our capital planning. As Philippe and Xavier said, what we think is very solid is our capacity to retain the 11% target as a lasting target for the duration of our medium-term plan. We don't count on a potential decrease of our Pillar 2. Maybe there is going to be a good surprise someday, but we don't count on it anyway. Well, just some points about this and Pillar 2. Of course, I could be wrong, but I'm sure that with this operation, the solvency of Crédit Agricole is absolutely normalized for all the future medium-term plan. I'm convinced absolutely of that. Just one or two additional questions. First, some of your competitors would publish exposure on metal and mining. I do not know whether you have any comment on this one. Second point on LCL net interest margin. We know there has been this issue with the transfer back of treasury to the parent company, if I am correct. It is very difficult from the outside to reconstitute how much of it represents in term of pressure and evolution of net interest income at LCL. Would you be more precise on this one, and should we expect further impacts going down the road, or it is something which is a part of the past now? Last question, it seems to me the tax level in Q4 at CASA level is quite small. Is there any specific explanation on that or it is just a normalization on the tax rate for the full year? Yes, on the last question, I confirm what you guessed. The level of tax on a quarterly basis is not very significant. What you have to consider is the average level of tax for the whole year, and for the whole year, I think we have a quite relevant and unsurprising level of corporate tax. Well, I get there are nine questions on the phone call, so I propose you to take the first question on the call. We take our first question from Geoff Dawes of Société Générale. Please go ahead. Yeah. Hi, good morning, everyone. Geoff Dawes here from Soc Gen. Quite a few questions. I will stick to just two or three for the time being that we can run through. First of all is in terms of some of the footnotes that you put on the slide going through the economic and financials of the transaction. You mentioned there could be a price adjustment of EUR 500 million to the one-off gains next year. Can you just give a bit more detail? Does that mean the one-off impact could be much higher, and the capital gain could increase by 10 to 20 basis points? Second of all, related to that point, you mentioned a 50% payout ratio, obviously. Does that include the one-off gains for 2016, or is that excluding the one-off gains for 2016? Second question is, has any of this been discussed with rating agencies, and what is their view on the proposed transaction? Then the third question, which is a bit more top-down, I guess, is if you look at the business, you talked about the different silos there. The two businesses that it seems tough to get out of those silos are LCL and Cariparma, in that they are relatively subscale and don't really have a huge amount in the way of synergies with the rest of the group. What happens next for those two operations? They could potentially be hyped off as well. Thank you very much. Those are the questions for now. Maybe I will start with the price adjustment mechanism. What we have said is that the price is set on the basis of the 2015 year-end figures, and we are going to have a price adjustment, which is defined. The price that we set on the reference date will be increased by the increase of the capital situation of the regional banks in the meanwhile. So it means globally that if, as Xavier said, if the transaction takes place in the middle of this year, the price will be closer to EUR 18.5 billion rather than to EUR 18 billion. Indeed, the one-off effect will be higher than the one we presented in the slide. Now you have a question on the payout ratio for 2016. We just actually set the dividend policy for 2015. Maybe let us wait until the end of this year in order to give you details on the specific issue that you raised. What is important is that we have a global payout policy of 50%, and that starting from 2016, this dividend is going to be paid in cash. Then for LCL and Cariparma, maybe I will leave Philippe answer the question. Well, I think in your question, because I read the French translation, so it is easier for me. There was a part of question about the benefits of the operation in 2016, and the question was In part, those benefits will be included in the distribution of dividends for 2016. I like that we have already said that we shall use part of these benefits of this privilege to this liability management, so that will decrease the cost of our ALM cost. So yes and no. Yes, our policy of distribution of dividend will be 50% in cash. This is our aim, but we can't be very precise on the level of the results, of course, for 2016. About Cariparma and LCL, I do think you are really rude and severe with us, and I would like to highlight that, for example, when you are in Italia just doesn't mean only Cariparma for us. We are really the model of BUP, universal customer-focused bank, with all the business lines around our retail banking, with cross-business that are really managed and organized by Giampiero Maioli. I think that this model is probably clearer to see in Italia than in France. It's quite bold, but Cariparma can be a get out of our organization, and I do tell you that the BUP is specially winning in Italia. Sometimes we have given you the results of the whole Crédit Agricole Group in Italia, and I think we should come back on this kind of figures in the future. About LCL, it's exactly the same thing. Don't think that LCL would absolutely stand alone inside the Crédit Agricole Group. It's just like your regional banks. The links are very strong with the business lines of Crédit Agricole S.A. For example, with CIB, we are working about a large corporate or middle-sized corporation. We shall give you the NTP of Crédit Agricole Group, including, of course, LCL and can tell you we shall be very ambitious for LCL inside the Crédit Agricole Group. Okay, great. On the answer I gave to Alex earlier on the leverage ratio, actually the CET1 that we published is fully loaded. The leverage ratio that we published is 15. Excuse me. Okay. Also the question on the rating agency view, whether that is something that has been solicited already. We do not expect any modification of our rating for this operation. We think that considering the fact that at group level, there is absolutely nothing changed in terms of solvency, liquidity, and P&L, and that at CASA level, there is a strengthening of the solvency of CASA. We do not expect any modification of our rating, and I think that we are confident on that. Very clear. Thank you very much. Just to be crystal clear, the 41 basis points relates to the EUR 11 billion purchase price, not the EUR 11.5 billion. The EUR 18 billion you mean? Sorry. Yeah, EUR 18 billion. Exactly. Perfect. Thank you very much. Thank you. We move on to Guillaume Tiberghien of Exane for our next question. Please go ahead. Yes, good morning. The first question relates to the corporate center. Could you maybe give us a guidance of what would be the run rate going forward of the losses in the corporate center, presumably post the transaction. Presumably, you can probably go to EUR 1.2 billion, not in 2016, obviously, because there's going to be lots of one-off, but on an underlying basis. Secondly, the LCL, could you give us an outlook for the revenues in 2016 for LCL? Third, on the litigation, you clearly used the gain from Alpha Bank to reinvest it in litigation. Is that the beginning of a new accrual of provisions, or should we consider it as a one-off? The last question is on your investments. You said you want to grow now. What should we expect of the cost base going forward or the jaw effect going forward? Should we expect an acceleration or a disappointment on the cost because of that word in your press release? Maybe I would start with the corporate center. Obviously, this operation is going to help significantly to ease and to reduce the cost of the corporate center. Again, we will give some guidance and some additional clarity on this on March the 9th. But obviously, this is going to induce a very strong reduction in the drag that the cost center represents on the profitability globally of CASA. As far as LCL is concerned, I think we all know that the situation of retail banking activities are still under a certain pressure. What I mentioned is that during the last quarter, we've seen some positive elements. It's only for one quarter, but we've seen some positive elements. Which are the decrease in the level of early repayment and renegotiation of loans, and which are also linked to the slight increase in the customer rate of the new loans put in place during the quarter. Before all these elements together really produce an inversion of the pressure on the interest margin, it's going to take probably a certain amount of time. But you've seen also that we have seen an increase of 2.5% in the fee income of LCL, and we expect also a continuation of this positive trend. All in all, I'm not going to give you a precise guidance on what is going to happen on LCL, but we are seeing some elements that are going to induce a possible improvement of the situation in the future. On provision, there are accounting rules. I want to look at that as a general policy. But clearly, as mentioned by Philippe at the start of this meeting, we want to be, as much as possible, on the cautious side. We know that we are in an environment which is quite risky. There are a lot of legal risks. Again, we want not to take risk in this regard. Next question. Thank you. Our next question today comes from Jean Noe from Goldman Sachs. Please go ahead. Hi there. Just three quick questions. Now that we have the final rules for the FRTB, I just wondered whether you could share with us any impact that you might have estimated here. Secondly, on the corporate center, regardless of the changes with the transaction, I just noticed that the run rate of the line other in corporate center has shrunk relatively significantly recently. I think last year was north of EUR 400 million, this year is something like EUR 150 or so. I know it's volatile, but I just wondered whether the real run rate is closer to this year or to last year, that you think is realistic to expect. Lastly, is it possible to, now that we are halfway through the quarter, I guess, share with us any feedback that you get on your current level of activity in the investment bank, given all the volatility that's been in there and the lack of deal flow. Thanks. Yeah. Did we get the first question precisely? Can you repeat it? The fundamental review of the trading books. I guess there has been the final rule there, but at some point, mid-last month, I think it was, and I just wondered whether you had an early estimate of what that could be for Crédit Ag. We do not have a precise estimate of what it would represent for us, but considering the level of capital market activity that we have, it is going to be probably a much smaller impact with us than it is with many of our competitors. But we are not in a position yet to give you precise information on that. Okay. As far as the corporate center is concerned, again, we will update completely the corporate center guidance once we will have taken into account all the concrete and tangible impacts of these transactions we are presenting to you today. I think for the time being, there are still some moving pieces, and so you have to be a little patient, if you allow me, before having an updated guidance. But what I can tell you is that, again, we intend to take advantage of this operation to really accelerate the reduction of the cost of the corporate center. Last point on the capital market activity since the beginning of the year. I understand the volatility that we have seen since the beginning of the year was not very favorable for some customer operations, but it is probably too early to give a too precise level on that. Okay. Very good. Thank you so much. Thank you. We move on to Bruce Hamilton from Morgan Stanley for the next question. Please go ahead. Morning, guys. Thanks very much for the presentation. A few questions from me. Firstly, just on CIB. If I assume an 11% capital allocation, I think you made about an 8% return in 2015. Obviously, the environment feels pretty tough in 2016. Are you looking at that business and thinking more it's a sort of a revenue problem you've got to build there or it's more of a cost issue? Secondly, I wonder, given ECB you'd like to move deposit rates further negative, can you share any sort of broad sensitivities you've run in terms of what that could mean, sort of for earnings looking out to 2016, 2017? Then thirdly, on gas exposure, what's your exposure to the U.S. energy market within that $27 billion, I know it's high quality generally. That'd be great. Thanks. Again, to be frank, I didn't fully understand your first question. If you could repeat it, because Sure. No. Yeah, of course. Sorry. I make it that on the underlying sort of net income of a bit over EUR 1 billion, given RWA at about EUR 130 billion, on an 11% capital allocation, given that that's what you've got to run the group on, you made just shy of an 8% return on equity. Given that, and the environment obviously seems to be getting harder, both in terms of top line and probably the provisioning risk is growing on the energy book. How do you think about that business? Is that something where you get the return up more by pushing on revenues, or is it more the cost that need addressing? How should we think about that? Well, again, we are going to give you some precise detail on March the 9th. We are not going to use this presentation to give the strategy we intend to follow in the different business lines. But maybe just for the CIB, because your question was on the CIB, just bear in mind that considering the type of CIB that we have for the moment, probably the market is allocating the cost of equity to this CIB activity, considering the business mix that we have, which is probably a little bit too high. But for the rest, please allow us to reserve our precise answer on our intention on the CIB for the meeting of March the 9th. Sure. I understand second question was on the ECB, but again, as I said, the sound in this room is not very clear. Sorry, yeah. I was just asking if you could give us any broad sensitivities around what the impact on your model would be from the ECB moving deposit rates a further 10 or 20 basis points negative. It is clearly an additional challenge because if we go deeper into the negative territory like the ECB seems to have the intention to do, but we will see in March what is going to happen, if I understand. We will try to do as we did before. We will continue to adapt, but of course, this is a challenge for some of our activities, be it the custody activity, the asset management, of course, and some other activities. We will have to adapt. But if you allow me to complement this answer, you have to keep in mind that both in LCL and Crédit Agricole Regional Banks, a large chunk of our loans have been yet been restructured to take into account this very low level of interest rates. Our customers have asked us to lower the interest rates they pay, and we have accepted, and we consider that looking at the figures we have during this last quarter, the movement is less variant than it was in the previous quarters, which mean that this movement, to a certain extent, could be behind us, to a certain extent. Thanks. That's helpful. Thank you. Finally, just on the exposure to U.S. energy with the new oil and gas book. Go back to you with this element because I don't have it in mind right now. Perfect. Of course, a significant part of the exposure is linked to a U.S. counterpart, but not all of it. It depends completely on the categories, segment of customers, segment of activities. We will go back to you with a more precise answer. Thank you. I have just in front of me, Jean Bouchet, perhaps he can add something about this question and the repetition of our. He's just looking for a micro. Thanks, Jean. I would say that CIB is not significantly focused on U.S. It's really a worldwide business, except for independent producers, mainly in Texas. It's not a real large exposure. As an example, 41 independent producers have gone through bankruptcy in 2015. We had one for EUR 6 billion, to be precise, and have good hopes to recover this money. Thank you, Jean. Thank you. Thank you. We now move on to a question from Jean-Pierre Lambert from KBW. Please go ahead. Yes, good morning. Thank you for the complete presentation. Three questions. The first one is regarding the target ROTE, which you indicate should be above 10%, while previously it was 12%. So perhaps, I know it's not your investor day today, but still, if you have a 9% dilution of earnings, that should be 11%. Second question is regarding oil and gas exposure. In the footnote, you indicate that your exposure, before application of credit conversion, is 36.2. I just want to understand if you have any form of insurance cover or if you have passed on some loans to your insurance activity as part of the OTD process. Then the third question, if I may, is related to the corporate center, which provides services to the regional banks. Are there going to be changes in the activity profile in payments or asset liability management, or rather will these services remain the same? Thank you. As far as the return on tangible equity is concerned, again, we are going to be more precise when we publish our medium-term plan. What Philippe Brassac has said is that we continue to target a return on tangible equity above 10%. If you take into consideration the target that we had set in the previous medium-term plan, you have to take into consideration not only the fact that we have a small dilution that is linked to this operation that we presented today, but you have to take into account the fact that we are targeting a higher level of CET1. Because we were targeting 10.5, and we are now targeting 11%. As we already said previously, during previous presentation of results, we have also to take into account some elements that were not taken into account in 2014 when we presented the previous plan. It's the development of the different categories of taxes, like the Single Resolution Fund, which is going to cost significantly more than was included in the 12% target we published at that time. I will not do the math completely before our presentation of March 9, but we are not talking about the same things, and we are not on the same basis as it was before. Your question on oil and gas, no, we didn't pass any exposure to the insurance business. I don't know if it's a suggestion from your part, but we didn't do that, actually. No, the footnote is only here. It's purely a Basel methodology. We are talking, as all of our competitors, we are talking about the Basel exposure at default, and this is the reason why we put this small footnote. Thank you. Thank you. We now move on to Delphine Lee from JP Morgan for the next question. Please go ahead. Yes. Good morning. Delphine from JP Morgan. Just two questions left on my side. First of all, just to go back a little bit to Corporate Center, given TLAC is not really a topic and you're looking into maybe deleveraging further the Corporate Center, but how much debt are we talking about here in terms of that you could potentially buy back? If you could give just maybe an order of magnitude to help us understand the impact, that would be helpful. Secondly, on asset management and Amundi, just wondering if you can give us a little bit of an update of where AUM is or how your inflows are developing so far in the quarter. Thank you. Well, as far as the balance sheet optimization operations are concerned, I think we've been given some detail, and this is as much detail as we can provide to you right now. This is on page 13, I think, of the slide. We intend to invest up to EUR 750 million of one-off cost, and we target to optimize or to improve our costs by EUR 165 million. As of now, we are not in a position to give you any additional detail on that. As far as Amundi is concerned, as the Chief Executive Officer of Amundi is here, maybe he's going to give you some answer. Yes, I will give the same answer that when we release the results. Generally, we don't comment on a month in January. Of course, the global context of the market, it's not a scoop to say that it's less favorable since the second semester than it was in the first semester. But at the same time, I mentioned that we are still confident on the three years objective that we have given in terms of inflows. Okay. Just to follow up on the Corporate Center, because you still have quite a bit of debt, which is expensive. Is there anything in the long run that we could expect in terms of further restructuring on top of that EUR 750 million you just mentioned? Thank you. For the time being, we are not going to give any additional precision. First, it's not completely set. Second, we have to wait until all the elements of this transaction that we intend to conduct are fixed. So for the time being, we are not in a position to give you additional details. Thank you. Thank you. We now move on to Stefan Stalmann of Autonomous Research. Please go ahead. Yes, good morning, gentlemen. I have a couple of follow-up questions on the transaction with the Regional Banks. If I understand it correctly, the Regional Banks are not buying back their CCIs directly, but they end up in this vehicle, SACAM, which is your. So what is the reason for that? Why is there no direct buyback? Why is this SPV established? Or maybe in other words, if the Regional Banks had bought back the CCIs directly, would there have been a capital effect at the group level? The second question, just a clarification on something that was already asked with regards to the potential adjustment to the purchase price. The way I would have looked at this was to say that, yes, there could be a higher purchase price because the equity in the Regional Banks would be higher in the middle of 2016, but you would have also realized additional at equity income in the group. Your base book value would have also increased, and therefore the capital gain should not change much. Is that a wrong understanding on my side? Thank you very much. I will try to answer the first question. Xavier Musca speaking. We call this operation intragroup reclassification of CCI, CCA. It is not about deleting capital, which would have been the case if the regional banks were to buy back their CCI, CCA. That would not have been a good choice for us as a group, since, as you know, there are, above all, EUR 6 billion outside of our hands, which are in the public. Again, we did not look at the operation the way you look at it. We just look at the reclassification of these assets, which are now in the hands of CASA, to another body, which is outside the market view, and that is what we did. On top of that, we think it is a good idea to maintain, and that is the key message I want you to keep in mind, we think it is a good idea to maintain some degree of mutualization of interest among the regional banks. This mutualization today is done through CASA. In the future pattern, the mutualization will be done by SACAM Mutualisation, and that is why we called it SACAM Mutualisation. It will mean that they will have a linked interest in the businesses and that, in our view, is something positive we want to keep, and they themselves want to keep it as a symbol of solidarity among themselves. On the second aspect of your question, actually, once we have announced the transaction, the CCI and CCA will no longer be equity accounted. The equity value in our books of this CCI and CCA will no longer progress, and so this is the reason why the potential additional price would translate into an additional capital gain. Right. We can basically expect this for the first two quarters. We will not get any P&L impact from recurring income anymore, but we get it through a capital gain. This is one pocket to another one, said nicely. Okay. Thank you very much. Thank you. We now move on to Kiri Vijayarajah from Barclays. Please go ahead. Yes. Good morning, guys. Going back to the transaction, you said the Regional Banks are financially very strong, but why then is CASA actually needing to provide the EUR 11 billion loan? Can't the Regional Banks find that liquidity themselves? Linked to an earlier question, if you weren't doing or being forced into the EUR 11 billion loan, could you have been more aggressive with the balance sheet optimization exercises you talk about, and therefore done more to maybe reduce the drag from the corporate center? Thanks. Yes. I think what this transaction is aiming at is an improvement of the, of course, the simplification, as Philippe and Xavier said, simplification of the group structure, which wouldn't have been performed through a simple loan. But more importantly, a loan is not an element of capital. What we are reaching here is an improvement of the quality and of the level of capital of CASA, which a loan wouldn't have permitted. To complement the answer, if the regional banks were to raise themselves the liquidity in order to finance the operation, what would we do with the money we receive from them, considering the level of interest rates? For us, it's a good thing that we are able to lend them the money at an appropriate rate, which is, as I mentioned it, 2.15. Okay. Thank you. Thank you. We move on to Anke Reingen from Royal Bank of Canada. Please go ahead. Yeah. Thank you very much. Actually, the first question is on the EUR 11 billion loan as well. Does that have any, or is the capital consumption of that loan relatively high, or is it immaterial, and would it be included in the 41 basis points benefit of the transaction? Secondly, just on the cost of risk in your financing division, could you maybe give us a bit of an indication of where we should see it in 2016, given trends in the energy sector? I know it's quite volatile over the years, between 18 and 25 basis points. Where do you think it's going to be in 2016? Thank you. Well, on the second part of your question, as you have seen in 2015 as compared to 2014, the cost of risk in the financing division of the CIB remained more or less stable. Again, if we take out the EUR 350 million specific litigation provision for the OFAC issue. Inside this stability, we managed to complement the oil and gas provision by something which was in the region of EUR 150 million for the whole year. It means that we have the ability to manage our provision inside a certain level of cost of risk, and accordingly to the issues that are raised by the economic situation. This is, I would say, inside our baseline of cost of risk. Of course, I'm not pretending to be able to see from now what is going to happen globally, around the world, and through all our portfolios. I'm not able to give you precise information on the level of cost of risk for the next year. But what I want to say is that in 2015, we managed to significantly complement our oil and gas provision without showing a significant hike in the level of cost of risk. You had also a question on the EUR 11 billion loan, but excuse me, I didn't keep in mind your question. What was it again? It's the EUR 11 billion loan on the capital consumption of that. Would that be included in the 41 latest It is an intra-group transaction, so it will not consume capital. Okay. Thank you. Thank you. There are no further telephone questions. Perhaps a last question in the meeting room. Alex. Yes. Thank you. One very last question is, you provide the breakdown of your RWA or capital consumption per division. Thank you for that. You gave the RWA tie to Amundi, CACEIS, and Banque Privée. I am just wondering whether you can provide a specific RWA tie to Amundi. Yes. Excuse me. Can you repeat your question please? Yes. I just want We are on page 98, right? Yes. Of 70. 70. 70. Okay. Then I am just looking to the RWA linked specifically to Amundi. This is because over there is also CACEIS and the private banking. Can we- Oh, specifically to Amundi? Yes. I think we have something like EUR 700 million of capital for specifically Amundi. Okay, great. Thank you. Another question in the meeting room. Yes, one last question from me. Regarding your capital, your management buffer, which is 150 basis points, of course, you say that you want to keep in the cautious side. We have clearly understood that. Regarding this cautious side, what is the part of the risk you integrate in this management buffer relating to the Maximum Distributable Amount? Which definition now is not very clear so far, because it is integrating the Pillar 2, it seems, but maybe it could not in the future, we do not know. In the case where the Maximum Distributable Amount, the MDA, was not supposed to include the Pillar 2 buffer, do you think that it would be reasonable for you, still remaining on the cautious side, to lower the management buffer? Thank you. Well, I think we are working on the present art of state of the situation. The state of art, excuse me, of the situation. The situation is that, the issue of where does the MDA stand has been decided end of last year, and there is a press release, I think, from the European Banking Authority that clearly put it that the MDA was at the level of the Pillar 2. We are working on this assumption. If someday some rather significant assumption were to change, we would reassess the situation, but for the time being, we are working on this assumption. We have the next question on phone conference, I think. Yes, we have a further question from Robin Down from HSBC. Please go ahead. Hi. I have a couple short questions. First on tax charge. I appreciate we cannot look too closely at one quarter after another, but if I still look at the full year stage and take the profit number pre-equity affiliates, the tax charge is just 26.8%, and you have EUR 500 million in litigation provisions in there where there is virtually zero tax shield. The charge does look very low, and I am just wondering what your sort of guidance is for future years for that tax charge. The second question, just on the Regional Bank stakes. Maybe this is not a question for you to answer, but is there an intention to buy back the public CCIs that are listed on the market as well, so that the Regional Banks and the Fédération have regained 100% control? And then just final question really, just in terms of. Obviously, I am very pleased to hear all these questions about the corporate center. But in terms of the sub-debt, can you confirm what your average cost of issuance was in 2015? I think it was close to around 3%. And what the average cost is of the sub-debt on your book. I think that is around 6.4, 6.5, but maybe if you could just clarify what the numbers are. Thank you. Okay. For the tax charge, you are right when you say that we have some elements of charge that are not tax deductible, but we have also some elements of income which bear a specific tax rate. For example, the EUR 163 million of price complement that we received for the sale of Emporiki had a very low level of tax, and that is an element of explanation in the other direction. Then your question about the cost of the subordinated debt, I think we will have to compound some figures before being able to give you a precise answer. Maybe we can go back to you because, to be frank, I do not have the precise answer in mind right away. And then the last question on the CCI. On CCI. Again, there is no question about buying back CCI by the Regional Banks. The spirit of the transaction is not at all this one. It is just a reclassification. I would like to draw attention that if they were to do so, we would have problem with the ECB, we would have problem with pillar compliance, and so on and so forth. So at no point in time this option had been considered. Sorry, just to clarify, I did not mean buying back the CASA minority stake. I meant the CCIs that are outstanding in each of the individual Crédit Agricole Regional Banks. For instance, the Ile de France has CCIs that are quoted on market at the moment. That is my point. If we were to do so, if they were to do so, which belongs to their own decision and not to CASA decision, the impact on the other group would be to lower the level of capital for the whole group. I do not think it is appropriate. Again, we never considered that, and they never considered that, so there is no reason to discuss about it. Great. Thank you. Thank you. There are no further telephone questions. I consider that was the last question. Okay, we are just ending this meeting. Thank you very much, ladies and gentlemen, for your listening, and have a nice day. Thank you.

Data Source: Quartr Last updated: Feb 17, 2016

Earnings call transcripts are provided by Quartr and are published within hours after each earnings call.

Update frequency:

Quarterly

Data Sources Report a data error

• Slides
• Annual report