Earnings Call: Q4 2012

Feb 20, 2013

Welcome, ladies and gentlemen. Thank you for being with us for the Q4 and full year 2012 performance presentation for Crédit Agricole as well as Crédit Agricole SA. As you know, 2012 has been a difficult and an eventful year, which has been marked by a significant reduction in risks. At the same time, we tried to adjust to our new environment. A number of outstanding decisions that were required, we had to move fast, and it was painful, but we are turning over a new leaf and looking forward to the future, to 2013, and the upcoming years. I am going to go over the salient points for 2012. We have exited Greece entirely. The transaction on Emporiki is closed, and we did better than planned. We have zero EUR left in funding. Under the negotiations, we thought there would be a residual value, but just yesterday, the government took a stance on non-deductibility tax-wise. This has happened over a relatively brief lapse of time. Taxes will be levied on our losses. This is quite an original trend for France, and I am sure that foreign investors are keeping a close eye on the situation. Another salient point for 2012, we have successfully completed our adjustment plan. We have exceeded our targets. From June 2011 to December 2012, on the basis of 18 months, we have, as planned, reduced our funding requirements significantly by EUR 68 billion, no less. There is going to be a lot of figures here, EUR 68 billion. At the same time, we have also reduced our RWAs, which stands for risk-weighted assets, which have gone down by EUR 57 billion. Quite a reduction in financial services, CIB, and other areas as well. We stand at 150% of our objective. We have exited Greece. We have made adjustments in terms of risk-weighted assets and funding or refinancing. We have also refocused our business in Southern Europe. We reduced our exposure to sovereign debt. We have also deconsolidated our equity interest in Bankia. We have reduced it to 9.9%. We have disposed of BES Vida in Portugal, and we have disposed our 100% investment in Intesa Sanpaolo. We now stand at 0% equity in this entity. We have also taken measures to adjust to the environment in Italy with regard to Cariparma and Agos. Another salient event which marked 2012, as you can see on the screen, there has been a revision and discounting of the value of our assets. That is what we call goodwill. Over the past 18 months, goodwill has been impaired by EUR 5 billion. Since June 2011, as you can see on the screen, we have taken major decisions, we have taken quite a stance here. This goodwill impairment can be attributed to additional capital allocation in line with requests from regulatory authorities, but also we have adjusted to the economic conditions of the countries where we operate and the businesses where we operate. We needed to impair our goodwill because of existing prospects. At December 30, 2012, our stock stood at EUR 13.96 billion. Slightly less than EUR 14 billion, pardon me. The impairment has taken place over a very short period of time. At this time, the remaining EUR 14 billion are mostly carried to the tune of EUR 10 billion by LCL. Among the insurance business, we have a strong foundation there and very few concerns. All of the work that we have done aside, that means that we have a pretty strong position. Another salient aspect of 2012, we have kept on improving our operating efficiency. We are seeking productivity gains. We are improving the way that we are behaving. A number of major aspects here, first of all, the adjustment plans for CACIB and CACF has led to headcount reductions. We also have adjustment plans focusing on EUR 350 million by 2014. This will be factored in. In addition, we have a program called MUST, which has mostly to do with IT purchasing and buildings, real estate. Under this project, we are seeking annual savings of EUR 650 million starting in 2016. We already started in 2013 and 2012, actually. We are on track to achieve this savings target. Another important aspect, we have plans to improve efficiency in the retail banking business. The NICE project, which will have a determinative impact, it is a multi-channel project enabling customers to switch from one channel to another, so we need to unlock synergies. Cost control also within LCL, and last aspect on this particular front, Cariparma. We have a cost reduction plan there, which is quite significant. As you can see, 2012 has been quite eventful. This means that 2012 has confirmed our robust retail banking model, and also related businesses as part of the Crédit Agricole group. In terms of retail banking, we are keeping, first of all, the retail banking business, and also the different business as you will see has been quite eventful. This means that 2012 has confirmed our robust retail banking model, and also related businesses as part of the Crédit Agricole group. In terms of retail banking, we are keeping, first of all, the retail banking business, and also the different business lines. This is the retail banking contribution to our net recurring income of the net income group share, rather net attributable income of Crédit Agricole SA. I would like to emphasize this particular aspect. We are experiencing much resistance from retail banks. They have displayed strong business momentum. I would like to say that the regional banks and LCL represent a business, as you will see on the French map. We hold 36% penetration rate for individual customers, 40% penetration rate for corporates, 30% for small businesses, 85% for farmers, that is our legacy field. These are the figures which mean that our determination to truly have a presence out there is strong. I believe this is something you need to keep top of mind. As far as savings is concerned, this is a business that has very close ties to retail banking. Savings and insurance are leading and high performance businesses, and in most cases, they require little capital consumption, and they help strengthen the group's profitability. If you look at retail banking profitability and investment, rather savings profitability, these are major contributors to Crédit Agricole, and this really confirms the relevance and topicality, quote unquote, of our economic model. We are bringing together retail banking on the one hand, and the trade expertise on the other. We are not just pretending. We are part and parcel of the Crédit Agricole group. We are active, and we are taking up a stance. Also, in 2012, we transformed the CIB model using Crédit Agricole CIB. This is a bank that provides financing to major corporates in line with the needs of the group's customers, in line with the needs of Crédit Agricole and Crédit Agricole SA. This is a private banking business. Its strengths have been recognized. Here are a few examples on the screen. A few examples of our positioning. As you can see, our capacity, our size raises relevant questions with regard to our presence in France, in Europe, and in the rest of the world. As you can see, these are our positions across the world in various fields, project finance, aeronautics, et cetera. This is what I can tell you in terms of my presentation. I'd now like to hand over to Bernard Delpit, who will present the results for Crédit Agricole and Crédit Agricole SA. Thank you, Jean-Paul. Before rolling out the presentation, I would like to summarize the key figures with regard to exceptional items, the underlying income, as well as the capital structure of CASA. On February 1, we made an announcement to the market. We announced what we thought would be all of the exceptional items to the tune of EUR 3.8 billion. As you saw in the press release, we have been forced to amend the figure due to a recent decision by the French government to alter what we factored into our books in Q3. I estimated the deductibility of losses on disposals with regard to Emporiki and Alpha Bank. We changed the figure in the final back stretch, so exceptional items are up from EUR 3.8 billion to EUR 4.5 billion. This is one of the other aspects that we need to take home in terms of closing the transaction on Emporiki. The rest went perfectly and well according to plan. We've been able to release our provisions that had been factored into Q3 financial statements. In terms of the funding we were planning to maintain in Greece, because there is no residual funded funding in Greece anymore, we no longer need those provisions. If I may add, with regard to liability guarantees, all of this has been provisioned for. Also, with regard to exceptional items, everybody says it, but I'd like to say it again, the issuer spread for debt is creating a pendulum effect from one fiscal period to another, a significant pendulum effect. This means a EUR 2.2 billion reduction in net revenues compared with 2011. The impact on the financial statements for the last quarter comes to EUR 440 million. On a full-year basis, if we factor in the debt Buyback transaction in Q1. This is a negative impact of EUR 150 million. Despite this operation, which went really well at the beginning of the year, so there's an accounting impact on debt. If we look at revenues, clearly they play an important role in our analysis. Nothing new under the sun here. We indicated that, of course, we needed to factor in the exit tax on the life insurance business, which comes to EUR 130 million, and this has to be factored into our capital and other businesses. The total taxes enacted by law since the summer come to EUR 290 million. Crédit Agricole SA and the regional banks together pay the French taxman EUR 2.5 billion in 2012. Also, with regard to exceptional items, we have completed our adjustments plan. We have exceeded our targets, but we've come under budget in terms of planned costs, with a total of EUR 360 million in total costs for the adjustment plan against a budget of EUR 450 million. If we factor in the exceptional items, the net income for Q4 comes to EUR 3.982 billion and the full year is EUR 6.471 million. Let's look at the normalized income. For Q4, EUR 548 million, up 10% year-on-year. The normalized income for the full year, which is EUR 3 billion, is 17% lower than in 2011. The salient aspect here is how strong our retail banking business is. As you will see later, we're talking EUR 333 million in normalized income for the quarter and EUR 1.7 billion for the full year. Savings management, EUR 446 million in normalized income and EUR 1.7 billion for the full year. SFS, a negative EUR 115 million for the quarter and EUR 118 million for the full year. CIB, a positive income of EUR 225 million for Q4, on a normalized basis, and EUR 1.2 billion for the full year. Also what we call corporate center, negative income of EUR 305 million for Q4, and this is in line with the indications we provided to the market. Going back to the income statement. As you can see, our revenues are down by 6.4% in Q4 on a like-for-like basis versus last year. We indicated the revenues from the different business lines are up by 0.5%. So those are costs that we're factoring into our corporate center businesses. All of the business lines related to securing a better sheet, this has an impact on revenues. The business lines are ticking back up in Q4. Operating expenses are down throughout the year, down to 0.2%, so a negative 0.2%. This includes the voluntary departure plans that we provisioned for of Cariparma. I'll get back to that once I discuss Cariparma. As you can see, cost of risk is down in Q4 by 5.1% and there's an 18.9% increase over the year, which can be fully explained by the additional provisions we've made for Agos throughout the year. With regard to equity affiliates, you find the impact of something we already announced with regard to SAS Securities and SAS Rue La Boétie. Impairment, obviously, this had an impact on the income of Crédit Agricole and also the impaired goodwill for Banco Espírito Santo, which we already indicated on February 1st. With regard to changes in the value of goodwill, the figures you can see on the screen are slightly different than what we announced on February 1st, simply because we looked at the impact on net income back then. Here, this is the figure before minority interests, hence the difference. We have a positive tax liability for Q4. With regard to 2012, there's an apparent tax rate of 50%. This is significant, but can be explained because of the non-deductibility decision that was recently made. With regard to the net income from held-for-sale operations, the negative EUR 717 million for Q4 2012 is the minus EUR 58 million due to non-deductibility of valuation that we factored into our accounts yesterday. But reversals of provisions there have a positive impact to the tune of EUR 121 million, and the EUR 3.9 million has mostly to do with Emporiki, but also the sale of Cheuvreux and starting Q4 of 2012, CLSA. Because of the compression rate for the sale disposed for the sale plan, we are now recording Crédit Agricole SA under IFRS 5. So much for our general considerations. Let us now look at the different business lines. Now, a consolidated vision of retail banking in France. Here is one positive aspect. On-balance and off-balance-sheet deposits are both positive, up 5.6% and up 2.6% respectively. Lending is up 1.4% for retail banking in France. The loan-to-deposit ratio is 124% at December 2012. I do not know whether every bank does it, but we are talking about the decentralization of funds with the CDC. I simply want to indicate that if the ratio between outstandings and the total loans, the ratio would be 66%. So we factor in our sole banking funding sources, and that is why we stand at 126%. Now, as you can see, the regional bank's contribution to Crédit Agricole SA net income is EUR 210 million for Q4 2012, before the impact of impairment shares on SAS Rue La Boétie. And EUR 1 billion, that is the impact for the full year. And for LCL, the contribution for Q4 2012 is EUR 123 million, down 5.8% year-on-year. As you can see, retail banking in France accounts for 56% of Crédit Agricole SA's normalized income in 2012, which truly sets us apart from the competition. Any names come to mind? With regard to the regional banks, allow me to clarify. Here we indicated that impairments and changes in impairment had an impact of EUR 819 million for the full year. The EUR 140 million impact for Q4 has to do with the 25% stake of Crédit Agricole SA in the regional bank. So the total comes to EUR 551 million. I would like to insist on cost of risk. Cost of risk is particularly low for the regional banks and down further. This means that the off-loan ratio on page 69 for our analyst friends is 15 basis points, which is rather low. The 6.5% and the 3.5% increase in expenses have to be restated for changes in the NICE project. Now this is now part of operating expenses because it is a major project, and there is also new taxes. This means that on a full year basis, the increase in expenses restated for this additional tax pressure comes to 1.9%, versus an improvement in revenues corrected for impaired value changes of 1.5%. And this is where you have the final figure of -4.1% in the chart. With regard to LCL, Q4 was marked by excellent business performance in life insurance. Out of all the French networks, LCL probably performed best in Q4. We also can see that we have a loan-to-deposit ratio that is above 100%, stands at 116% at the end of December 2012. We have been maintaining that level throughout 2012. You can see that we have a gross operating income, which is stable over Q4, and that has increased year-on-year, again, containing our costs, which has enabled us to be able to maintain our revenue, though it did dip in Q4 by 0.2%, in particular due to the decline in commissions and fees. Looking at the cost of risk, we've seen an increase of 10% over the quarter, so nearly 9% over the year. The cost of risk in basis points has reached 33 basis points, which also is perfectly under control, with a coverage rate that is 76.8%. The 10% increase over Q4 has an increase in the cost of risk that we can take for 2013 in line with our cautious approach in terms of certain sensitive credit lines. Looking at Cariparma, several comments I'd like to make here. First of all, here again, we're remaining quite cautious in terms of how we are managing our liquidity for Cariparma. We have a surplus in on-balance sheet deposits. We can see an increase of EUR 2.2 billion. You can see that we have an increase over the year. We had a seasonal effect over Q4, but over the year, an increase of 2.6% in revenue. We can see our expenses up 0.9% year-on-year. And we also need to add into that increase the impact of our voluntary departure plan. The total, we have EUR 118 million over the year, EUR 64 million over the quarter. You've seen that on Jean-Paul's slide. It's nearly 10% of the headcount of Cariparma that is being included in this voluntary departure plan that will stretch out through 2015. Cost of risk, no surprises here. It's what you've been seeing quarterly since the end of last year. There's been an increase in Italy and with Cariparma. It has increased by one third versus Q4 2011. But each quarter since that period of time, we have seen an increase in the cost of risk. And I also would like to point out here that at the central level, we also have EUR 35 million provisioned in order to deal with the consequences resulting from the inspection of the Bank of Italy. So that's taken place in all of the Italian banks in terms of the property risk. These EUR 35 million provisions have been booked. Also, looking at the Cassa bank counter Cariparma that have been closed earlier, we have been able to use that provision to adjust the figures and the cost of risk for that subsidiary. Looking at the coverage rate for the risk, it's 45%, excluding those EUR 35 million. I would also like to point out that the Cariparma group has integrated the gain on the disposal of Civita. Looking at savings management, you can see that when we look at the total outstandings managed by all of the different organizational group, reach nearly EUR 184 billion, an increase of EUR 83 billion over the year. This is beyond the market performance effect. When we look at the net new inflows, in particular for Amundi, I will be coming back to that, and also in insurance. Looking at the funds administered and managed by CACEIS, have increased by 10% and 20% respectively. When we look at the net income for our savings management business line, it has reached EUR 446 million over the year, and as I have already indicated over the quarter, EUR 1.7 billion over the year. A sharp increase, it is true, versus fourth quarter last year, where we had recorded the annulling of the Greek debt. Going into more detail in terms of Amundi, you can see that inflows stood at EUR 15.2 billion total. That was including the outflows for the networks. On our partners side, as well as the Crédit Agricole networks and LCL networks total for the year. It is more than offset by the positive inflows that we have for our institutional customers, with our third-party distributors, with the companies for which we manage the employee savings. We see the market shares are climbing as well for Amundi, looking at mutual funds in particular, and also in terms of employee savings management, where Amundi is number one in France in this area. The income is quite solid at Amundi over the quarter, over the year, and an increase again with the strong point of Amundi, which is the cost-income ratio at 55%. Looking at insurance, what we look to see here is a very good Q4, with net inflows being positive, in particular over the entire scope in France. Continued growth in the business for property casualty insurance. However, we have seen decline in credit insurance due to the consumer finances slowdown. Total over there we have seen EUR 1,081 million in net income, of which EUR 284 million in Q4. We can see that the revenue is bouncing back. Yes, EUR 284 million for the time being and for Q4. When we look at the operating expenses, you can see they have declined sharply in Q4. However, in 2011 in Q4, they had been higher due to the effects of the annulling, the canceling out of the Greek debt. We can see that this is perfectly under control. I would like to point out here that we have spoken a great deal about innovative finance recently, and Crédit Agricole Assurances is contributing to this with EUR 3 billion in investment in the form of loans to local communities, as well as underwriting of bond issues of unrated companies. Turning now to the specialized financial services, we are continuing our work to transform our businesses with a decline of four points experienced since the beginning of our adjustment plan of our consolidated portfolio, of which EUR 1.4 billion for Agos Ducato. We are continuing to diversify our sources of funding for this business line. We'll be continuing to cut down on our expenses with a plan at CACF in France, which took some time to implement due to procedural reasons, which will now be yielding its results starting in 2013. The same thing for CAL&F, so leasing and factoring. Again, a decline in the activity and a sharper decrease, however, in the expenses as well. In light of this, the revenue is down by 14.4%. Also a decline in the same proportions of the operating expenses. The highlight for the quarter and the half year is look at the cost of risk. We can see that it's up 1.2% versus Q4 and last year, an increase of 31% over the year. Also mentioning the cost risk of consumer finance and France, whereas at Agos, the cost risk has increased for Q4 at Agos, we need to consider that taking into account a normalized cost of risk, which is what we are counting now for 2013, at a sum of EUR 250 million per quarter. We've been able to add EUR 180 million in order to bring the total coverage of doubtful debt to 96%. We can point out here that at Agos, they've been working quite intensely on this. They've been working on this work coming from the teams, the new management of the processes, bringing down the expenses in order with our partner there to be able to find the best way of being able to obtain a rebound at Agos and to thus have positive income flows. Looking at the specialized financial services, they have an impairment of EUR 30 million for deferred tax assets in Poland, in line with the management guidelines of the group. Turning now to corporate investment banking. You can see here that a total for the quarter that the normalized income was EUR 199 million in Q4 over the year. We can see that this EUR 199 million was EUR 1.2 billion, and this is of course due to high performance and capital market activity, so quite dynamic. We saw that the income was up by 13% for the market activities in Q4. For the time being, we've seen the financing activities did decline by 16%, along with a decline in liquidity in those activities. So a decline of 11% versus the month of December 2011. Looking at the expenses, they are up by 2% year-on-year, 18.3% year-on-year in Q4. I'd like to comment on that in particular. Last year, the adjustment of the variable pay at CIB had involved Q4 entirely, which meant that the basis of comparison in 2011 in Q4 had been particularly low. Whereas this year, the decline in variable pay has been spread out over the years. We compare Q4 and Q4, that of course, has led to this effect. I'd like to add also that we provisioned EUR 24 million to prepare for the streamlining of our sites for CIB, and that we have EUR 24 million in new taxes that will be EUR 20 million rather in new taxes. Looking at discontinuing operations, the impact has been limited over the quarter, so EUR 53 million. Looking at the year, the total has been EUR 42 million. But when we restate that in light of our adjustment plan, because many of the adjustment plan actions involve speeding up the closures activities, we can see there is an impact of EUR 81 million over the year. So looking at the final cost adjustment plan for the EUR 92 million, including EUR 76 million over the quarter. And you can see that the cost-to-income ratio is 59.6% for CIB, so excluding the brokers, so it will go down below 58%. And so we can see this will have a very strong impact, the structural impact on bringing down that cost-income ratio for CIB. Now looking at the financing activities, as I already have mentioned, we can see a decline of 16% in the revenue as well as an increase in expenses with the impacts I had already described earlier with the same reasons I have previously described. We can see that a strong position being maintained, in particular for everything that involves project finance and syndication. We have seen a cost of risk for these activities, EUR 119 million net charge in Q4. So nothing particular to comment on beyond that. Looking at the capital markets and investment banking, you can see a strong increase in revenue for those activities. So this is a rebound in the activities in the market as well as the specific impact of the gap between OIS and LIBOR, which had been very negative in Q4 2011. And we can see that was nearly neutral in Q4 2012, which also explains this sort of rebound in revenue. We can also see there is an ongoing restriction of revenues in equities. So if we look at EUR 10 million, which is roughly one third of what we see with the level of VaR for competing companies. Now looking at the solvency ratios, we see RWA down. So by nearly EUR 41 billion, so 12% decrease. I think it is one of the strongest declines among French banks. And you can see that we also have a Core Tier 1 ratio that includes the disposal of Emporiki, which in accounting terms, we have in the results of Q4, so at 9.6% with a 9.2% being the ratio before we take into account the Emporiki risk, so the EUR 15 billion. So on the page 79, we have something new, which is an explanation of the decline in RWA, because this is a point explaining to the markets what involves the methodology, what involves the organic changes in the decline in our risk-weighted assets. And you will see that we take into account the disposed Emporiki we have gone down by 18.5% organically in terms of RWAs since the beginning of the year. Now, let us move, if you will, very quickly on to the group income. So pulling away from the individual businesses look at the group. Looking at the contribution of regional banks, you can see it is at EUR 3.5 billion over the entire year, so an increase of 3.4% in the Crédit Agricole group, which objectively is the relevant scope with which we will be carrying out comparisons with the other banks. And the revenue you already know about down EUR 3.8 billion for the year, but 5.6 when normalized with a limited decline in net banking income total for the year, 0.8. Expenses that are higher, but primarily three-quarters of which would be linked to the new taxes that have been voted since last summer. Looking at our solvency ratios for the group, and you know that this is a level at which we manage our solvency. They reach 11.4% prior to the disposal of Emporiki, 11.8% of quarter one, including the disposal of Emporiki. It is very close to the best levels in France. I would also like to point out in our regional banks, we had a total of EUR 650 million in new issues of mutual shares in the local and regional banks. A new slide here. It is the first time that we are publishing our fully loaded Basel III ratios. Looking at 11.8% for quarter one under Basel 2.5, and the ratio under fully loaded Basel III, which is 9.3% of 12/31/2012. Looking at the actions that have been implemented, we can see there is room for maneuver with regards to our target, which is to be higher than 10% by the end of 2013. Very quickly looking at liquidity, looking at the balance sheet. Here for the first time, we are showing you what we are calling our cash balance sheet, giving us a clear view of the overall size of the balance sheet within CASA. Here you can see that it is at 1,032. You can see that the surplus of funding sources reaches EUR 47 billion at the end of the fiscal year 2012. Now, I would like to speak about liquidity reserves, point out how solid they are reaching EUR 230 billion at the end of the year. An increase throughout the fiscal year, which also is a component of the strength of our group. Looking at medium and long-term funding in the market throughout 2012, we were able to raise nearly EUR 19 billion, EUR 6.8 billion more than initial program, and we have a program for 2013 of EUR 12 billion. If we look at the issues that either have come through the private issues, we can see the total last year, as indicated on this slide with the breakdown between what is covered, the senior, and secured as well. You have that detail here on this slide. Before I turn the floor back over to Jean-Paul, you can see here that we have carried out substantial efforts in order to adapt to the new financial and regulatory environment with containing of our debt, taking into account the cost of risk, as well as organic efforts, which of course, has been reflected in the disposals that took place throughout 2012. For 2013, of course, we are expecting a positive, solid income with an improvement in all of our business lines in terms of our cost-income ratio, the productivity of the liquidity used, as well as the profitability of our capital, ROC. We are also looking at an increase in our net banking income, and the amount of which will depend upon the markets, the market outlook, markets in particular. Next year, we are planning on strong activity in the capital market activities that we had in 2012. We need to be a bit more cautious, so might be a bit of a smaller increase, but we are looking at an increase in the income. We are looking at a decrease at our expenses of 1.2% what we worked on in 2012, and this will be set up starting in 2013. And naturally, of course, looking at a decline in our cost of risk, take into account in particular the increase in the coverage rate, particularly for consumer finance in Italy. Thank you. We are adjusting to the environment significantly so. The economy is what it is. The regulatory and banking environment with Basel III, and for liquidity and for solvency, and also the current French regulatory environment, requires consistent adjustments. We have lowered our expenses and our risk levels for 2012, and we are going to streamline our operations in 2013. The two main aspects here is that Crédit Agricole SA solvency is being strengthened. Let us start with that. You may have noticed that for the Crédit Agricole Group, there is no ambiguity whatsoever. The regulatory requirements, while we come to 9.3% at the end of 2012 and over 10% by the end of 2013. Crédit Agricole SA per se, if I may say so, is determined to strengthen its solvency without a share issue. Of course, we will continue to rigorously manage our assets. We have already demonstrated our ability to do that in 2012, and we will continue to do so in 2013. SAS Rue La Boétie, which is a majority shareholder, has also decided to increase the bank's solvency, which demonstrates that the group's governance system works well in difficult times, and has decided not to pay dividends in respect of the year ended 2012. It has also opted for paying out dividends in the form of shares for the year ended 2013. This is a high degree of trust. Concurrently, we are going to continue our discussions with the regional banks so that we can expand the existing internal solidarity mechanism using Switch mechanisms. That way, we can reduce our risks and therefore improve our solvency ratio for Crédit Agricole SA. Of course, for more figures regarding the specific solvency curve, this will be part of the internal plan and will be presented in due course when we present the medium-term plan. This is something that we will work on in the fall of 2013. We will present the plan in the fall of 2013. Why should we need a medium-term plan? Well, it makes sense. The economic environment, the banking environment has changed quite a bit, and this means that a new medium-term plan is required, of course. This medium-term plan will be part and parcel of our group project, which we sketched out in 2010. We sketched out a number of major guidelines and trends based on our core business, what we call the universal customer focus, the retail banking business. This is our profile, and we are sticking to it. There are two major guidelines. First of all, we want to ramp up projects in universal retail banking by leveraging our strong positions. We're number one in France, as you well know. We have 25% market share in terms of financing the economy. We rank among the top players in Europe in terms of asset management. We are the leading bank insurance player in Europe, and we want to continue this in-depth work on the transformations that are necessary in our specialist business lines. We will, of course, share with you any information necessary in the fall of 2013. I'm sure that the regulatory aspects will be finalized over the summer, and in the fall, hopefully, we can refer to those texts once they have been stabilized. This will avoid having protracted discussions. 2012, as you may have noticed, is a year in which we have refocused our core businesses. We pulled out all the stops. We went all out. Now that we've turned the corner, we can look to the future, having put aside those concerns. We are determined to win new business, of course. We are hopeful in the future, particularly with regard to our core business. We have demonstrated our ability to adapt in 2012, and our ability to come to terms with reality and to address any problems that may crop up so we can leave them behind us. I think we have developed our ability to expand in those areas where we have a strong presence, and wherever we have a weak presence, wherever there are problems, we address them. This is something that I said several times. We have reduced our risk levels, our debt levels, and our expenses. We will continue to do so. We believe that in 2013, things will be tough, maybe very tough for the Eurozone and France in particular. We're fully convinced of that, and we've done whatever it took in 2012 in order to brace ourselves for the future, for 2013. Crédit Agricole is in marching order and ready to meet its future obligations in sustainable fashion. We want to deliver sustainable financial performance. Words are all well and good, but we have to turn it into action. I believe that the medium-term plan to be presented in the fall will show just that. Crédit Agricole is a leading player in the area of sustainable development and corporate social responsibility. Should you have any questions, Bernard and I are on hand, and the rest of the management team is also. Good morning. My name is Delphine from JP Morgan. I have a couple of questions. Let's start with your comment on Crédit Agricole SA revenue, the improvement in revenues. Are we excluding the impact of the adjustment plan in 2012? What kind of improvement can we expect for the various activities of business lines? Also, with regard to positive risk, could we have more of a guidance with regard to France, as well as consumer finance in particular, what you said about LCL, there's a 10% improvement expected in 2013. Two last questions. Firstly, with regard to the impact of the insurance business on Q1 2013, the impact on CASA in terms of changes in how insurance is processed, and also reform of the banking environment in France and the potential impact on retail banking. Yes. I will address the first question on the impact, and Bernard will talk about the Crédit Agricole's revenues. You've seen our net revenue situation. On a normalized fashion, we excluded outstanding or exceptional items due to the adjustment plan. This means that you can interpret the results at "cruising speed," quote, unquote. This has been formally identified. The adjustment plan, which in terms of cost, has been all factored in, and then we have recurring cost savings, which, of course, have been factored into the reduced expenses and also into the GOI very clearly. With regard to the overhaul of the banking sector, there are aspects pertaining to segregation of activities. I don't believe we will be much impacted. There is a concern, however, and you've put your finger on it. With regard to retail banking and management fees, it's difficult for us to develop a position, because we don't know what the ceilings are going to be per operation on a monthly basis. We depend on a ministerial order, that all of the French banks have voiced concerns on this front, because this will disrupt daily relationships between customers and asset managers, and will also have an impact on the ways in which retail banks have organized themselves. Depending on how these ceilings change, we will need to adjust and cope with the situation to try to strike a balance between our expenses and our net revenues. This is something that we've always done, whether for LCL or Crédit Agricole SA. Through the cost-income ratio, we have a constant ability to adapt and adjust, and we will make those adjustments. This is what we told the government on this front. We said, "This is what we expect will happen based on your decision with regard to so-called intervention fees or overdraft fees with regard to our various types of customers." This is what I can tell you. We don't know the ceiling, and so it's hard to give you specific figures. Clearly, negotiations are going to be tough, so we're keeping our ear to the ground. Cost of risk? In terms of net revenues and changes in net revenues, your question had to do with 2012 or 2013? Aha, 2013. Okay. As far as 2013 is concerned, we're planning for an increase in net revenues year on year. All I'm saying is that the magnitude, the extent of this improvement in revenues will in part depend on changes in capital markets activities, which were improved significantly in 2012. Either we're cautious and we say we'll be within range, or the improvements will be even more significant, and this means that net revenues will be up sharply. Right now, we have a very cautious approach to CASA's net revenue improvement. With regard to cost of risk, as I indicated earlier, we're planning for cost of risk to increase for LCL. This is in line with changes in market conditions, and we want to improve LCL's coverage rate. Now, if we look at the growth rate for the last quarter as an indication for 2013, I believe this is the kind of forecast you can make. With regard to cost of risk for the regional banks, it's harder for me to make projections. You may have noticed that the provision rate is in excess of 100%, all items included, and this may have a potential impact on the net contribution to CASA's net income. I'd rather not make any forecasts. But for a number of quarters now, cost of risk has stayed really low, 15 basis points versus outstandings. For ABP, we are talking 33 basis points relative to outstandings, and at this point, we do not have an indicator that would indicate a strong increase, as another colleague indicated with regard to the different networks in France. Cost of risk will increase and yet stay low as far as France is concerned. With regard to the impact of the insurance business on the Capital Requirements Directive IV, the figure is the same as for every quarter. Assuming the Danish Compromise, this will have a EUR 3 billion impact on capital consumption relative to Basel 2.5. So weighting to the tune of 370% of our equity in the insurance business, having factored in a decrease in equity. As you may know, we have initiated a transaction to reduce our equity in order to increase the internal debt of the insurance business to the tune of EUR 1.72, EUR 1.7 billion at the end of 2012 relative to end of 2011. So we have reduced our share of equity relative to the other insurance business, and the weighting is 370% under the full Basel III standards. That's for the group, not CASA. As far as CASA is concerned, of course, we will discuss our targets as soon as the rules have been published, and also as part of our medium- and long-term plan. With regard to consumer finance? Or Agos more specifically. As I indicated earlier, in Q4 there are two main aspects. First of all, the current cost is in the order of EUR 250 million, and we also want to support the increase in the coverage rate. So we have taken the necessary measures. If we take EUR 250 million per quarter, I am being very cautious here because there's new management team preparing a new industrial plan. It's work in progress, working together with management and also our partner in Italy. Going back to EUR 250 million per quarter, that's our target rather than our projection. Now we have to see how things pan out in Italy. Thank you. Any other questions? My name is Pierre Chédeville from Crédit Mutuel. As a subscriber to Agos, you talked about additional funding, but in the bar chart on page 70, what do we find? 460 basis points, but I found that pretty surprising. In the previous quarters, you used to include the addition. Is this a mistake? Or are there any differences? Maybe the additions are of a different nature. Well, yes. The additions are of the same nature. We don't have a breakdown here, but this is the difference between dark green and light green, basically. If I factor out the EUR 180 million that you talked about, what are we talking about in terms of basis points? How much goes into the gray area? On a normalized to have a cost of risk excluding additions on a normalized basis for 2013, Pierre. Look at every quarter on page 70. As you may have noticed, we range between EUR 260 million-EUR 264 million in Q2, excluding additions. Slightly stronger in Q3, I admit. This is what I am saying. We could get back to something like 260 basis points. I think that's the right approach. 260 basis points. Yes. In Q1, we're talking 260 basis points. In Q3, 330, which is a bit higher. Q2, 264. So something between 260 and 300 basis points, excluding the increase in charges to provisions, and this is something that we did in exceptional fashion. This is something that we did in 2012. With regard to Agos, you talked about disposing of a EUR 540 million portfolio. What is the discount rate on that? What's the haircut? Do you have any other portfolios up for grabs? With regard to Italy, I have a substantive question with regard to Cariparma. At the time of the acquisition, the cost-income ratio was very good. In the order of 45%, that was one of the best cost-income ratios in Italy at the time. In addition, if I remember correctly, we discussed the IT organization, an IT organization that could truly teach a thing or two to a U.S. management school. How could they further streamline 10% headcount, considering the fact that the organization was already as streamlined as it could be? With regard to CLSA, I am happy about the accounts for this quarter. Do we consider that nothing left has to be factored into the books CLSA? Yes, CLSA. For the next quarter, can we still contemplate an impact on 2013? Yes, absolutely. The disposal gain. It's just that we're now recording it under IFRS 5. With regard to ROE, can you give us the ROE and the ROTE on the basis of normalized income? Of course. Do you have a timeframe in mind with regard to profitability on a normalized basis, of course? With 10% cost of capital. I'll answer some of the questions, and I'll leave the questions on Agos. I'm not sure if we have that information here. Cariparma. No, I didn't realize that could be something that could be taught in business school, some sort of a case study. I'll believe you if you say that. Yes, at the time, Cariparma of course, had bought other branches, which of course, have brought down its cost-income ratio, and now they have 1,000 branches, and over time, over the years, they've increased the number of branches. They need to restructure that. They need to rework the cost-income ratio, which is why they have opted to improve their performance as headcount. There are other areas, IAS, and of course the management and teams are there in order to achieve those targets and to have a cost-income ratio in the range that Crédit Agricole would prefer, which we have for our retail banking to improve our efficiency. I hope that one day, yes, we could be a case study. We could be a good example. In any case, we have an intense work now for CLSA. We for 2013 didn't take into account that gain, which should be coming in, but for the time being, I don't have any signal showing if there should be any problems, any difficulties regarding that area. ROE. Yes, variety of nuances there. We haven't calculated this exactly, Bernard. I don't know if we have that for FY 2012, but with the results that we have, you can see that If we calculate our ROE, normalized. Yes. Now, for Agos, I think, do you have an answer for that? Yes. It's Philippe Gimond. Yes, so we disposed a portfolio of EUR 140 million, and so we have a capital gain of EUR 9 million, which shows that for the coverage rate you saw earlier, we're going from 90% to 96%. So we can see this is being adapted to the economic situation, which is a difficult one. So the concrete answer would be a capital gain of EUR 9 million. We're continuing with our disposal program, yes, to be able to bring down the pressure, the operational pressure on the team. So yes, we'll be continuing with that disposal program in 2015, once the appetite of certain players. Okay, there's been another question, I believe, in the back of the room. Yes. Hello. Alex from 6E. I do have a few questions I should ask you. Just coming back to the NBI, the growth we've spoken about in 2013, that is based on a normalized NBI with EUR 18 billion. Going back to slide 16, just to be sure. My second point would be, for the cash balance sheet, thank you for giving that to us. When we look at the long-term resources, we can see that we have 105%. What level do you think would be comfortable at the group level? Looking at CIB and its size, if we look at 2013, taking into account Basel III, I have some calculations show me that we should have a contribution from CIB of 20%, whereas CIB should be considering between 40% and 50% of RWA. So just what would be the balance point that you feel would be appropriate? Just if you could cover what is underfunded, what is carry forward for the tax carry forward. With regards to normalized NBIs, I told you if we look at the fixed income changes, it should be I'm not looking at a decline in NBI. I'm looking at being perhaps a slight increase. Again, if the fixed income revenue progresses as they did in 2012. Looking at the cash balance sheet, I don't have any fixed ideas about the appropriate surplus one should have for the long-term resources. It's a structure that is our funding. It should be corresponding to the environment that is currently being put in place. If we have a huge surplus, it's expensive, and so we are aiming at having a balanced structure. We don't have a target in terms of a coverage rate for having stable resources or funding sources. If we look at detail, we will be giving you precise details later. I won't be able to give them to you here during this meeting. However, we tend to be very cautious regards to DTAs, but looking at what we just did in Poland, unfortunately would've liked to have had more DTAs for the business for the disposal of mBank, but it is the government that refused to do so, which is why that was limited. Hello, two or three figures for CIB before CRD3 and CRD4. When we looked at, we had some EUR 120 billion in RWA. After CRD3 and CRD4, as things stand with the second plan directive, the RWA should increase to 2016 if we do nothing. We've already carried out many things in terms of CDO, CDS. We've sold off loans and our aim in terms of this program to bring down RWAs, looking at CDOs, a variety of things. We'd like to come back to EUR 120 billion, but it won't happen spontaneously, and it won't be achieved at the end of 2013. So again, more at the end of 2015, it will come back to our starting point. So that is the trajectory that we are looking at currently. Question off mic. I apologize, since there's a question asked off mic. Yes, we're expecting an increase. Or we'll try to do better, bring down RWAs and to maintain our income or to have that improved, and that of course, would require a substantial effort in terms of our expenses. Next question. Société Générale. I have a series of questions. I apologize, but I am going to be asking them in succession. Then if you like, you can just add in the answers between the questions. First of all, looking at the impact of IAS 19 on the solvency ratio. The competing banks are saying between -10, -15 basis points. So for Société Générale, BNP, what would the impact be on the solvency ratios of your group? Honestly, I won't be able to answer right now off the top of my mind. We can come back to you with that information if necessary, but it's the employee benefits. No, that wouldn't have an impact. It wouldn't have an impact because in our method we already, I believe, have managed that. The change in method won't change anything concretely. I get the impression we'd already had included all of the necessary adjustments. I don't believe we have any major impacts in that area. Okay, very good. Second question is in looking at capital. There are two schools of thought. Those who believe that Crédit Agricole SA is not undercapitalized with the profit advantages coming from the Switch project. So we include those advantages. I personally don't see any problems. But the question I would have would be looking at whether these methods are sustainable when we look at this context of a European, not a French regulator. So my question would be, for example, let's imagine that the Danish Compromise would be adopted in a CRD4 by the European Parliament. Would the European regulator allow the advantages of the Danish Compromise to continue on over time? Second, looking at the RWAs, looking at CCIs, CCAs, a competitor has sold off its stake in that network. And the question I have behind all of this is this a transaction that would be something Crédit Agricole SA could do if ever the technical solution, again, from a European regulatory point of view, is that we're not to continue over time? Well, here we're only looking at very complex rules here. Once those rules are established, we'll be looking at whether or not they will continue over time. But yes, you're right, and certainly need to look at this, and indeed, a competing bank has been addressing these issues. But when we look at Crédit Agricole SA's stance in terms of its capital is looking at managing its assets, looking at the extension of the Switch system. As to the impacts you're describing here, I think we're able to demonstrate already that there is some internal flexibility available. You mentioned Crédit Agricole SA and other organizations. We have different structures when we look at the profitability of the network banks that are quite different. So you can see that the impact could be greater for Crédit Agricole than for others, but we of course, are quite cautious in this area. In particular, given that we're moving forward, the definitions that we have, the ratios give us our RWAs. How can I put this? The regulator will scrutinize this and determine, first of all, whether or not Crédit Agricole SA is a solid group or if we had more than 10 at the end of 2013, 12, what we've seen and demonstrated now at the end of the day when we look at the company being able to demonstrate our strength. But again, if we need to see whether or not there are any modification requested by the regulator, of course, we would be adapting to that. But for the time being, we do not have any specific concerns at this stage in this area. But of course, we do constantly need to look at these points. Can I add something in? I looked at everything that's been published since this weekend on that topic, and I think there is a consensus explaining that situations are quite different, that the mechanism itself, that our Switch, that their systems do not have the same effectiveness in terms of the regulations in particular. So if you look economically from a regulatory point of view, I can understand the solution that was opted for, but we're not all on the same solution. Now, again, from a regulatory point of view, I'd like to point out that our mechanism absorbs losses. That's why it was set up as a guarantee system. So it absorbs losses, and that is why the regulator considered that it was effective from that point of view. Now, I don't know exactly what the system had been elsewhere, but in any case, ours was set up clearly with guarantee mechanisms with each one of the regional banks. These are contracts that have been set up and duly examined by all of the experts to ensure that they would be absorbing losses. So we believe that we have very solid arguments that we have used to justify to the French regulator to justify the system, and afterward to explain, if necessary, to the European regulator. Well, the difference between the two, I would agree with you, but there are some differences at Natixis, because this is the other bank I'm talking about. Because the transfers had only involved part of the risk-weighted assets, which explains the difference with the Switch project. What they did, however, was to isolate the funding cost of the CCIs, which Crédit Agricole has in the corporate center, and that allocated it to the CCIs, which of course, brought down the retail contribution. So it would be a cost of funding B for CCIs at Crédit Agricole SA. I would not be able to tell you off the top of my head. However, the cost of Switch has clearly been indicated to the market as 9.3% before tax. So that was then for the cost of funding for all of the affiliates in Crédit Agricole. So it is indicated, as you said, in the corporate center. Okay, very quickly for the next questions. If Crédit Agricole SA were to have enough capital, have a high level of capital even, in a context in which the banking structure most likely be restructured, perhaps have some mergers, are you a player who could be consolidating Italy and extending the Cariparma network? We are going to wait until Cariparma is used as a business case in American business school as an example. I think we would be capable of reacting fairly swiftly. We are not going to close that door, but again, we can see that we are making changes in that area, and Cariparma and Italy need to have a certain amount of stability before looking at that. Okay, another question I would like to ask. If ever the regulatory environment will be more complicated than previously thought, the stake on BES, would that continue to be strategic? Well, with BES, for many years, I think 20 years we have been working with them. We are loyal to our positions. Portugal has gone through a difficult period. They have not recovered completely, but we are alongside them over the long term. So if there were to be an earthquake, a tsunami, I do not know what we would do. But for the time being, we are there alongside that structure. Okay, I still have three other questions. The MUST project, so EUR 650 million in cost savings between now and 2016, if I am not mistaken. Are there investments necessary to bring down the cost by EUR 650 million over that period? Not substantially, because within Crédit Agricole SA, we have organizations that are decentralized. So we are focusing our efforts on collective efforts in terms of property, collective purchasing of property. I am not saying that they will not have any adjustments. There are some that we pointed out because they will be absorbed by the ordinary operating expenses, which is why looking towards 2016, we have already started these programs. We already see results. I have already seen a substantial improvement. Also, we have NICE, where we will be looking at development capacity as well as savings. So again, we have several efforts underway, and we will be focusing on all of those dimensions. And the last question involving retail banking in France. In your forecast, you are looking at income between 2013, 2015. It looks like it is going to be flat. An environment in which the interest rates are going to continue to be low with the loan activity being impacted, perhaps even some deleveraging, and the pressure that you have mentioned on the commission and fee activity linked to the regulatory environment. What could we expect? Could we be expecting this to be flat? Would we be expecting a decline? What would your opinion be? We haven't determined our position. We're working on a medium-term plan. We need to be able to include our efforts in terms of our net banking income, look at what we're doing in terms of home loans, renewable energies, aging, health, the agro food business. We need to be able to quantify these components. At the same time, we have expenses, our spending that also needs to be factored in. Generally speaking, I would agree with the consensus saying that overall, there's pressure on revenue, net banking income, and it's not just on commissions, it's for the retail banking, particularly on the interest rate curve. If we remain in an environment that is not as favorable as is the case today, yes, there's a great deal of pressure. However, if things were gradually to go back to normal, I think there'd be less pressure on the top line for retail banks. Again, I think the consensus for the time being is well adapted to the situation as it stands. Thank you very much. Another question over there, and then two more on this side. Yes, I have two questions. The first one in terms of SFS, the packaging of the financing. How much time will that process be taking, in your opinion? What impact are you expecting? I'm sorry, I don't understand your question. Regarding the refinancing of the consumer finance activity and SFS, you already have mentioned that over time, there'll be a repackaging, we could say, or change in that funding. How long will that process last? What are you expecting once those adjustments are carried out? That's my first question, and the second involves the financing for CIB, looking at the revenue today, the forecast level for the existing business and looking at the production side, how you would picture that business mix, what you would have in mind in that area. For SFS, I just make sure I've understood the question. What we indicated is that for revenue, for consumer finance in particular, we have the impact of the fact we've gone from historically great short-term financing to more long-term financing. Here, our approach is purely opportunistic, meaning that if the short-term is more accessible, if it's a good cost, then of course, we will have that benefit in consumer finance, which is not the case right now. Today, we are maintaining a high level of pressures. We can have more independent financing, which is what we have indicated on the slide here. We would like the financing not to be out of line with what the Crédit Agricole could bring to consumer finance. Today, for the year to come, I do not see any changes in this arbitration, this decision that we're making here. Looking at the balance in terms of the structural needs. As regards to financing activities for CIB, if we look at the price effects and the volume effects. For the price effects, what we have been looking at for the next few years, not right away, is that the entire loan portfolio would be financed by stable resources. In other words, we'll no longer have any transformation for that finance activities. Of course, this is money that we are missing out on. That would be more compatible what we're setting up for the group Crédit Agricole. As for the volume effect, in terms of, again, in order to reap this level, we bring down the available resources down in the overall balance sheet so that we can have financing. However, we would just have a case with a much more origination, much more distribution than prior to the crisis, where we'd have a genuine effect. We've considered that we need to be realistic. We need to continue to originate as much to distribute what we have planned. The upshot would be that we're looking at a slight gradual decrease in NBI for that activity, but we'll have a slight gradual increase in the market NBI, and that's the overall balance that we're looking at for the next three years. Thank you. If I could add into the and answer the question that was asked to me regarding IAS 19, I will confirm they have no impact because we do not use the corridor method as many of the competitors do. So IAS 19 will not have an impact. Bank of America, Jean-Baptiste, I have three questions. The first one involving the revenue from the regional banks. You have shown the underlying revenues are fairly dynamic in Q4, but I've seen an increase in the insurance fees, nearly EUR 150 million in gap between Q3 and Q4. Was there some specific operation or a change in the split? Because we've seen that it's much higher, as you've underscored, but perhaps better with LCL. With LCL, we're not seeing this variation in commissions. That's my first question. The second is, you have spoken about innovative funding in insurance that would account for some EUR 3 billion. Do you have any targets, any specific aims for 2013? Is this something that would also be involving Amundi? My third question for Amundi would be the ambitious target of developing outstandings in Asia, in particular, will this involve a phase of increasing costs, or will it be moving forward with the existing structure? Will that enable you to be able to deliver that ambitious growth in the outstandings that you're expecting? Yes, coming back to the regional banks and insurance. When we look at the regional banks of the year, we had been using existing insurance business. Why is there a difference with LCL? They'd started the write-backs earlier. There was sort of a rebalancing of activity that we'd started in 2011 that comes back to 2012, which is why we have different results. I think that we had sort of a cooling off period in terms of life insurance. We've come back, and that would be the most direct explanation I would have on that point. For the innovative financing, yes. We like to be able to provide support to the economy through insurance and with Amundi. For Asia, I will allow someone else to answer that. We have some EUR 2 billion for 2013. It's modest. We're going to try and do better, to do more. But again, it's just a general idea. We're going to have to learn. It's just a general trend. We need to be able to maintain a certain balance as well. I don't know if perhaps we could have a response on Amundi. We're trying to develop our outstandings in Asia, and these development efforts are helping us improve operations because we operate in a business which is based on fixed costs. In terms of predictions, we have achieved 55% of the cost-income ratio. This is in line with the European average, and we want to maintain this cost-income ratio in our business. Thank you. Any other questions? If there are no further questions, thank you so much for your attention and your continued-