CREDIT AGRICOLE SA: Results for the second quarter and first half of 2020 - A V-shaped recovery for Crédit Agricole Group
*Results for the second quarter and first half of 2020 *Montrouge, 6 August 2020
*A V-shaped recovery for Crédit Agricole Group*
*Crédit Agricole Group**
*Underlying revenues*^1
*Q2: €8,536m*
stable Q2/Q2
*H1: 16,914m*
*+0,3% H1/H1* *Underlying GOI*^*1*
*Q2: €3,398m*
+5,4% Q2/Q2
*H1: €5,843m*
*stable H1/H1* *Underlying net income*^*1*
*Q2: €1,785m*
-3,3% Q2/Q2
*H1: €2,767m*
*-15,7**% **H1/H1* *CET1 ratio CET1*
*16.1%*
+0.6pp June/March,
+7.2pp above SREP^2
· *Q2 stated net income Group share: €1,483m *(-18.2% Q2/Q2), *H1: €2,391m* (-24.4% H1/H1); Q2 stated revenues: €8,096m (-4.6% Q2/Q2); H1: €16,462m (-1.3% H1/H1)
· *Strong recovery in Group business activity thanks to the Universal Customer-focused Banking model*: 685,000 new retail banking customers in H1-20, net promoter score up (+7 pts vs. 2019 in Regional Banks and LCL); growth in outstanding loans excluding State guaranteed loans (+5.9% June/June), accelerated roll-out of the three pillars of the Group project, especially in green finance.
· *One of the best levels of loan-loss reserves in Europe. Stable NPL ratio (2.4%), increase in coverage ratio (84.5% +0.2pp vs. March 2020)*; loan loss reserves of €20.1bn; *increase in provisioning (to €1,208m, x2 Q2/Q2)*, (70% of the increase related to provisioning on performing loans of €424m in Q2). Annualised cost of risk/outstandings in H1 45bp;
· *Very strong level of solvency, CET1 at 16.1%, 2022 MTP target already reached* (buffer above SREP: 7.2pp)
· *Excellent results for the Regional Banks*: Underlying net income €663m (+17.9% Q2/Q2). Underlying revenues up: +1.2% Q2/Q2, underlying costs excluding SRF down: -8.9% Q2/Q2; stable NPL ratio (1.8%), high coverage ratio (99.7%), increase in provisioning (+24.9% Q2/Q2)
* Crédit Agricole S.A. and 100% of Regional Banks
*Crédit Agricole S.A.*
*Underlying revenues*^*1*
*Q2: €5,185m*
+0.1% Q2/Q2
*H1: €10,322m*
*+2.4% H1/H1* *Underlying GOI*^*1*
*Q2: €2,130m*
-0.5% Q2/Q2
*H1: €3,713m*
*+2.9% H1/H1* *Underlying net income*^*1*
*Q2: €1,107m*
-10.9% Q2/Q2
*H1: €1,758m*
-13.7% H1/H1 *CET1 ratio *
*12.0%*
+0.6pp June/March,
+4.1pp above the SREP^3
· *Stated result*: €954m (-21.9% Q2/Q2); stated revenues: €4,897m (-4.9% Q2/Q2), stated GOI: €1,838m (-12.9% Q2/Q2)
· *GOI up in the first half*: €2.1bn Q2-20 -0.5% Q2/Q2; €3.7bn H1-20 +2.9% H1/H1; improvement in Q2 of the cost/income ratio of 1.2pp thanks to stable revenues (+0.1%) and lower expenses (-1.9%);
· *Increase in provisioning (€908m, x2.5 Q2/Q2), *of which €236m in provisioning on performing loans (48% of the increase). Annualised cost of risk/outstandings in H1 74bp; stable NPL ratio (3.2%), increase in coverage ratio (73.4% +0.9 pp vs. Mar. 20); loan loss reserves: €10.1bn.
· *CET1 ratio up sharply (+0.6pp) to 12.0%, *incorporating ECB regulatory adjustment measures (Quick Fix for +41bp) and the impact of the market upturn in the quarter on unrealised gains and/or losses on securities portfolios (+19bp)*.* Provision for Q2 dividends of €0.15 per share. *Buffer above SREP requirements: 4.1pp at 30 June, +0.6pp vs. March *
· Underlying earnings per share: Q2-20: €0.36, -10.1% Q2/Q2; H1-20; €0.53, -15.5% H1/H1.
· *Annualised H1 underlying RoTE 8.5% *
· *Liquidity indicators up (€405bn in reserves at 30/06/2020, an increase of €67bn vs. 31/03/2020).*
· *Activation of the Switch mechanism* due to market tensions during H1, stated cost of risk impact of €65m.
This press release comments on the results of Crédit Agricole S.A. and those of Crédit Agricole Group, which comprises the Crédit Agricole S.A. entities and the Crédit Agricole Regional Banks, which own 55.9% of Crédit Agricole S.A. Please see p. 32 onwards of this press release for details of specific items, which are restated in the various indicators to calculate underlying income. A reconciliation between the stated income statement and the underlying income statement can be found on p. 4 for Crédit Agricole Group and on p. 9 for Crédit Agricole S.A.
**Crédit Agricole Group**
**Largest bank in France, the Group is massively committed to supporting the economy**
The crisis has brought the Group even closer to its customers. Substantial support measures were introduced to *stay in contact with them*. 9 out of 10 branches and advisers throughout the Group’s retail banking network could be contacted during the lockdown period, either in person or remotely. At CA Italia, there was a significant increase in remote interactions, with +30% of customers active online. For the Regional Banks, the growth rate for digital customers was up +0.8 of a percentage point.
The Group’s strong efforts throughout this challenging period are also reflected in its *support for its hardest-hit customers.* The Group has been aligned from the outset with government strategies, with targeted measures for each customer category, and therefore continues to meet its customers’ needs. On 6 March, Crédit Agricole Group granted a *six-month moratorium* on loan repayments for corporate, SME and small business customers impacted by COVID-19. As at 17 July 2020, a total of 552,000 moratoria was granted in French retail banking for a total amount of €4.2 billion in extended maturities (of which, 83% for SMEs, small businesses, and Corporates, 71% at the Regional Banks and 29% at LCL). The French government also announced the introduction on 25 March of *State guaranteed loans* (Prêts Garantis par l’Etat) to meet the cash flow requirements of businesses impacted by the coronavirus crisis. By virtue of its strong regional presence and universality, the Group supports all businesses, from the smallest company to the largest corporation, and to date has received 23.7% of all State guaranteed loan requests. As at 24 July 2020, a total of 179,500 applications had been received by the Group for an amount of €28.7 billion (of which 62% for Regional Banks, 30% for LCL and 8% for Crédit Agricole Corporate and Investment Bank). The Group has provided *specific support to its SME and small business customers insured against business interruption*, with mutualistic support totalling €239 million. Lastly, €2 billion of *moratoria and State Guaranteed loans have been provided *to CA Italia’s customers.
Being available and *receptive to its most disadvantaged customers has been a key priority* for the Group in recent months, as the number of customers in a vulnerable situation rose significantly. The Group has responded by offering exemptions from penalty and overdraft facilities for SMEs and small businesses at the Regional Banks and LCL.
In the current context, *the Group Project is more than ever proving its relevance.* With regards to the *Customer Project*, the intensification of the relationship with customers has been reflected in their feedback and the Group is seeing an increase in its NPS^4 (Net Promoter Score) across all networks in 2020: +8 points for the Regional Banks (+7 points vs. 2019), +2 points for LCL (+7 points vs. 2019) and improvement of customer satisfaction for CA Italia. The Group is also continuing to steer its distribution and relationship model towards greater digitisation. Examples of this during the quarter include the increase in the contactless payment limit from €30 to €50 rolled out in six weeks, electronic signature of State guaranteed loan applications for SME and small business customers in Retail banking, paperless property and casualty insurance claims, and automatic processing of moratoria applications at CAL&F. The *Human Project* has been further strengthened, first and foremost by the total commitment of all employees to support customers, whether or not they have contact with them. Exceptional delegations have been set up in branches, illustrating the Group’s sense of local responsibility. During the crisis, customers have demonstrated a greater appetite for ESG offerings, which has made the Group even more determined to step up its community involvement through the *Societal Project*. At end-June, it introduced a non-financial reporting platform at Group level to meet the challenges of implementing and managing the Group’s societal targets. The approaches of the Crédit Agricole S.A. sub-divisions are also aligned with the Group’s community involvement, which has led to the launch of the first global equity fund focused on reducing inequalities for Amundi and the first complete range of asset investments in the fight against global warming for LCL. Crédit Agricole Corporate and Investment Bank, meanwhile, ranks Number 1 globally for social and green bonds. The Group is also very focused on diversity and youth employment and is determined to achieve its targets in these areas. Specifically, it has pledged to employ 4,000 work/study employees in 2020 (which places it in the Top 2 of the Figaro/Cadremploi ranking) and is making good process in the SBF 120's ranking of women in decision-making bodies, moving up 46 places in 2020 to rank in the Top 50. All of this attests to the *accelerated roll-out of the Group Project's three Pillars.*
*The Group’s commercial activity in the quarter was good, but especially buoyant at the end of the period. AuMs were up from second quarter 2019 (+7.1%), as were those of life insurance (+1.6%) with a rise in the percentage of unit-linked assets (+0.5 percentage point between June 2019 and June 2020 to 22.7%). In the retail banking networks in France and Italy, growth in outstandings remained strong. Loans outstanding amounted to €726.9 billion (€681.8 billion in France and €44.2 billion in Italy; €708.4 billion excluding State guaranteed loans), up +8.7% from second quarter 2019 (+9% in France and +4.9% in Italy), and up +5.9% excluding State guaranteed loans. On-balance sheet deposits stood at €671.8 billion, up +11% from second quarter 2019, while off-balance sheet deposits remained stable (+0.1% at €382.8 billion). Gross customer capture was particularly solid (+685,000 customers in 2020, of which 630,000 in France and 55,000 in Italy), with a sharp acceleration in June (+150,000 customers, +2.4% June/June). Against this backdrop, the customer base continued to grow significantly (+38,000 additional customers in 2020, of which 36,500 in France and 1,500 in Italy, +4.4% June/June). Consolidated consumer finance loans were stable (+0.2%), with sales regaining momentum in June (+170% between April and June 2020). Lastly, business in the Large Customers business line was extremely buoyant, especially in capital markets (revenues up +44% from second quarter 2019), with all sub-divisions making a strong contribution. Financing activities also posted good revenue growth (+6%) due to its ability to mobilise the full range of financing solutions for customers.*
**Group results **
*In the second quarter of 2020*, Crédit Agricole Group’s *stated net income Group share *amounted to *€1,483 million*, versus €1,813 million in second quarter 2019. The *specific items* recorded in the quarter generated a *net negative impact of -€302 million on net income Group share*.
*Specific items,* this quarter (-€302 million on net income Group share), included the impact of the cooperative support given to SME and small business customers with business interruption insurance amounting to ‑€94 million in Regional Bank revenues, -€2 million in LCL revenues and -€143 million in insurance revenues (impact on net income Group share of ‑€64 million, -€1 million and -€97 million respectively), as well as the impact of the cash adjustment on the Liability Management transaction carried out by Crédit Agricole S.A. at the beginning of June 2020 (-€41 million in revenues and -€28 million in net income Group share). The recurring accounting volatility items are to be added with a net negative impact of -€160 million in revenues and ‑€109 million in net income Group share, namely DVA (Debt Valuation Adjustment, i.e. gains and losses on financial instruments related to changes in the Group’s issuer spread), in addition to which the Funding Valuation Adjustment (FVA) portion associated with the change in the issuer spread, which is not hedged, totalling -€5 million, the hedge on the Large Customers loan book amounting to -€51 million, and the change in the provision for home purchase savings plans amounting to -€53 million. Specific items also include integration costs for entities recently acquired by CACEIS (Kas Bank and S3) for ‑€5 million in operating expenses and -€2 million in net income Group share. The activation of the Switch guarantee in second quarter 2020 generated two opposite impacts on cost of risk amounting to €65 million in the Asset Gathering business lines (positive impact) and for the Regional Banks (‑€65 million). In the second quarter 2019, specific items had had a *net negative impact of ‑€33 million on net income Group share*; they included only recurring accounting volatility items such as the Debt Valuation Adjustment (DVA, i.e. gains and losses on financial instruments related to changes in the Group’s issuer spread) amounting to -€3 million, the hedge on the Large customers loan book for -€6 million, and the changes in the provisions for home purchase savings schemes in the amount of ‑€24 million.
Excluding these specific items, the *underlying net income Group share*^5 was *€1,785 million*, down -3.3% compared to second quarter 2019. This decline was mainly due to the effects of the COVID-19 crisis, particularly on outstanding loan provisioning.
*Credit Agricole Group – **Stated and underlying results, Q2-20 and Q2-19 *
*€m* *Q2-20
stated* *Specific items* *Q2-20
underlying* *Q2-19
stated* *Specific items* *Q2-19
underlying* *Q2/Q2
stated* *Q2/Q2
underlying*
*Revenues* *8,096* *(441)* *8,536* *8,485* *(49)* *8,534* *(4.6%)* *+0.0%*
Operating expenses excl.SRF (5,036) (5) (5,031) (5,308) - (5,308) (5.1%) (5.2%)
SRF (107) - (107) (4) - (4) x 27.5 x 27.5
*Gross operating income* *2,953* *(445)* *3,398* *3,174* *(49)* *3,223* *(7.0%)* *+5.4%*
Cost of risk (1,208) - (1,208) (598) - (598) x 2 x 2
Equity-accounted entities 78 - 78 94 - 94 (17.0%) (17.0%)
Net income on other assets 78 - 78 (8) - (8) n.m. n.m.
Change in value of goodwill (3) - (3) - - - n.m. n.m.
*Income before tax* *1,898* *(445)* *2,343* *2,662* *(49)* *2,711* *(28.7%)* *(13.6%)*
Tax (308) 142 (450) (728) 16 (743) (57.7%) (39.5%)
Net income from discont'd or held-for-sale ope. (0) - (0) 8 - 8 n.m. n.m.
*Net income* *1,590* *(303)* *1,893* *1,942* *(33)* *1,976* *(18.1%)* *(4.2%)*
Non controlling interests (107) 1 (108) (130) - (130) (17.4%) (16.6%)
*Net income Group Share* *1,483* *(302)* *1,785* *1,813* *(33)* *1,846* *(18.2%)* *(3.3%)*
*Cost/Income ratio excl.SRF (%)* *62.2%* * * *58.9%* *62.6%* * * *62.2%* *-0.3 pp* *-3.3 pp*
* * * * * * * * * * * * * * * * * *
*Net income Group Share excl. SRF* *1,580* *(302)* *1,882* *1,815* *(33)* *1,848* *(13.0%)* *+1.8%*
In the second quarter 2020, *underlying revenues *were stable compared to the same period in 2019 at €8,536 million. For core businesses excluding the Corporate Centre, they were up +2.2%. This level of revenue for the quarter was due to a level of activity that remained buoyant, despite the public health crisis, especially in the Large Customers business line, which posted revenue growth of +20.9% (+€310 million). The Regional Banks also recorded a slight increase in underlying revenues (+1.2% or +€39 million), as did the Asset Gathering business line (+1.6% or +€24 million). However, Retail banking in France and internationally and Specialised financial services recorded a decline in their revenues for the period, respectively posting a drop of -6.5%/-€106 million and -11.7%/‑€80 million.
*Underlying operating expenses excluding SRF (Single Resolution Fund) *were *down -5.2%* compared to second quarter 2019 at -€5,031 million. Apart from the Large Customers business line, whose expenses increased by +€55 million (+7.0%), all other business lines posted lower expenses for the period, particularly all Retail banking (Regional Banks: -8.9%/-€198 million; LCL: -5.1%/-€29 million; International retail banking: -3.5%/-€16 million). These decreases were mainly due to lower HR and travel costs. Overall, the Group posted a positive +5.2 percentage points jaws effect (Regional Banks: +10.1 percentage points). The contribution to the Single Resolution Fund was supplemented this quarter by an additional €107 million (vs. €4 million euros in second quarter 2019). The *underlying cost/income ratio excluding SRF stood at 58.9%, an improvement of +3.3 percentage points *compared to second quarter 2019.
*Underlying gross operating income* was therefore up +5.4% to €3,398 million compared to second quarter 2019. Excluding the SRF contribution, the underlying gross operating income was up +8.6% to €3,505 million, compared to the second quarter 2019.
*Cost of credit risk* was up significantly (x2 compared to second quarter 2019) due to increased provisioning on performing loans for all sub-divisions in the context of the COVID-19 crisis. It amounted to €1,208 million in second quarter 2020, versus €598 million in second quarter 2019. Asset quality was good: the non-performing loan ratio was stable at 2.4% at end-June 2020 and the coverage ratio stood at 84.5%, up +0.2 percentage point over the quarter. Loan loss reserves amounted to €20.1 billion at end-June 2020, 30% of which was for performing loans (Stages 1 and 2). Starting in the first quarter of 2020, the context and uncertainties related to the global economic conditions were gradually taken into account and the expected effect of public measures were incorporated to anticipate future risks. Provisioning levels were established to reflect the sharp deterioration in the environment, taking into account several weighted economic scenarios and applying flat rate adjustments for the retail banking portfolios and corporates portfolios and specific additions for some targeted sectors, namely tourism, automotive, aerospace, retail textile, energy, and supply chain. Several weighted economic scenarios were used to determine the provisioning of performing loans, of which a more favourable scenario (GDP at -7% in France in 2020, +7.3% in 2021 and +1.8% in 2022) and a less favourable scenario (GDP at -15.1% in France in 2020, +6.6% in 2021 and +8% in 2022).
The increase in provisioning on performing loans accounted for 70% of the total increase in provisioning between second quarter 2019 and second quarter 2020. *Annualised cost of risk/outstandings^6 in the first half of 2020* *was 45 basis points* (vs. 33 basis points over a four rolling quarters and 51 basis points in annualised quarters). Provisioning on Stages 1 and 2 amounted to €424 million, versus €0 in second quarter 2019 and €398 million in first quarter 2020. Provisioning on proven risks amounted to €785 million (versus €588 million in second quarter 2019 and €516 million in first quarter 2020).
*Underlying pre-tax income stood at €2,343 million*, a year-on-year decrease of -13.6%. In addition to the changes in operating income explained above, underlying pre-tax income also includes the contribution from equity-accounted entities in the amount of €78 million (down -17.0%, mostly due to the Crédit Agricole Consumer Finance joint ventures) and net income on other assets, which stood at €78 million this quarter (versus -€8 million in second quarter 2019) and includes a real estate capital gain recorded by CA Italia. The underlying *tax charge* *fell -39.5%* over the period. The underlying tax rate dropped by -8.6 percentage points to 19.8%, mainly in line with the decrease of tax rate in France since the beginning of 2020. Accordingly, underlying net income before non-controlling interests was down -4.2% and underlying net income Group share was down -3.3% compared to second quarter 2019.
*Credit Agricole Group – **Stated and underlying results, H1-20 and H1-19 *
*€m* *H1-20
stated* *Specific items* *H1-20
underlying* *H1-19
stated* *Specific items* *H1-19
underlying* *H1/H1
stated* *H1/H1
underlying*
Revenues 16,462 (452) 16,914 16,682 (175) 16,857 (1.3%) +0.3%
Operating expenses excl.SRF (10,584) (75) (10,509) (10,585) - (10,585) (0.0%) (0.7%)
SRF (562) - (562) (426) - (426) +31.9% +31.9%
*Gross operating income* *5,316* *(527)* *5,843* *5,671* *(175)* *5,846* *(6.3%)* *(0.0%)*
Cost of risk (2,137) - (2,137) (879) - (879) x 2.4 x 2.4
Equity-accounted entities 168 - 168 188 - 188 (10.8%) (10.8%)
Net income on other assets 84 - 84 3 - 3 x 29.2 x 29.2
Change in value of goodwill (3) - (3) - - - n.m. n.m.
*Income before tax* *3,428* *(527)* *3,955* *4,983* *(175)* *5,158* *(31.2%)* *(23.3%)*
Tax (789) 148 (937) (1,576) 57 (1,633) (50.0%) (42.6%)
Net income from discont'd or held-for-sale ope. (1) - (1) 8 - 8 n.m. n.m.
*Net income* *2,638* *(379)* *3,017* *3,415* *(118)* *3,534* *(22.8%)* *(14.6%)*
Non controlling interests (248) 3 (251) (253) - (253) (2.0%) (0.9%)
*Net income Group Share* *2,391* *(376)* *2,767* *3,163* *(118)* *3,281* *(24.4%)* *(15.7%)*
*Cost/Income ratio excl.SRF (%)* *64.3%* * * *62.1%* *63.5%* * * *62.8%* *+0.8 pp* *-0.7 pp*
* * * * * * * * * * * * * * * * * *
*Net income Group Share excl. SRF* *2,913* *(376)* *3,289* *3,569* *(118)* *3,687* *(18.4%)* *(10.8%)*
In the first half of 2020, *underlying net income Group share declined by -15.7%* compared to first half 2019; Underlying revenues were up +0.3% and underlying operating expenses excluding SRF were down -0.7%, resulting in a positive jaws effect of +1.0 percentage point. The contribution to the SRF increased by 31.9% to €562 million. SRF contribution aside, the underlying gross operating income was up +2.1% to 6,405 million compared to the first half-year 2019. The cost of credit risk was multiplied by 2.4 and the tax charge fell 42.6% compared to first half 2019.
**Regional banks**
*Commercial activity* at the Regional Banks was *buoyant* in this quarter, with *growth in outstandings remaining strong*. *Outstanding loans* amounted to €543.3 billion (€530.6 billion excluding State guaranteed loans), up +8.4% from second quarter 2019 (+5.9% excluding State guaranteed loans). There was a strong increase in* home loans* (+7%) and *loans to SMEs and small businesses, and farmers* (+14%). *Loans* were up from second quarter 2019 (+32.6%) but down when State guaranteed loans are excluded (-14.8%). *Activity was particularly dynamic in June,* with a loan production level for June 2020 exceeding that of June 2019 (+36.1%, of which +6.9% in home loans, +2.9% excluding State guaranteed loans). Other indicators attesting to a strong recovery are the number of loan simulations and applications for savings accounts, up 75% and 63% (with 67% of the increase related to savings accounts on the balance sheet) respectively between March 2020 and June 2020. *On-balance sheet deposits* stood at €495.9 billion, representing an increase from second quarter 2019 of 11.1% (of which +25.2% for demand deposits and +8.7% for passbooks), while *off-balance sheet deposits* were stable (-0.5% at €264.7 billion) with life insurance AuM up slightly (+0.9%) and AuM linked to securities and transferable securities falling by -4.6%. Lastly, *gross customer capture* *remained very active* (+480,000 customers), with a sharp acceleration in June (+110 000 customers, +1.9% June/June), and a still-positive balance in banking mobility (+38,500 customers). Against this backdrop, the *customer base continued to show a marked increase* (+27,000 additional customers in 2020, +6.7% June/June).
*In second quarter 2020*, the Regional Banks’ underlying *revenues* stood at €3,316 million, up from second quarter 2019 (+1.2%). The *net interest margin* held steady while the overall level of *fee and commission income* fell (-2.3%) due to lower penalty-based fees and a decrease in payment fees. *Portfolio revenues *were also down as a result of end-of-quarter valuations based on international standards, although they recovered from first quarter 2020. Underlying *costs excluding SRF* were kept under control, decreasing during the period (-8.9% in second quarter 2020 compared to second quarter 2019) in line with lower HR costs. As a result, underlying *gross operating income* increased in second quarter 2020 (+19.6%) thanks to a positive jaws effect (+10.1 percentage points). Ultimately, despite an increase in the underlying *cost of risk* (+24.9%), the Regional Banks’ underlying *net income Group share* still rose +17.9% to €663 million.
Underlying *revenues *were down -3.2% in the first half of 2020 compared to first half 2019, as was underlying *gross operating income* (-5%), in line with the drop in *portfolio revenues* following the end-of-quarter valuations based on international standards. The underlying *cost/income ratio* was stable (+0.1 percentage point) with a decline in underlying *costs* *excluding SRF* (-3.1%). Lastly, with an increased underlying *cost of risk* (x2.1), the Regional Banks’ contribution to the Group’s underlying *net income Group share* was down -19.8%.
The performance of the other Crédit Agricole Group business lines is described in detail in the section of this press release on Crédit Agricole S.A.
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Dominique Lefebvre, Chairman of SAS Rue La Boétie and Chairman of Crédit Agricole S.A.’s Board of Directors, commented on the Group’s first quarter 2020 results and activity as follows: “Utility is achieved every day through what we do in concrete terms for citizens and for society. In these unprecedented times, the men and woman of the Group are fully committed to supporting customers and the economy. We are using our financial strength and performance to aid recovery, throughout France. That is, and always has been, our Raison d’êtreˮ.
**Crédit Agricole S.A.**
**Solid results (-13.7% H1/H1) driven by GOI growth during the half year (+2.9%) and prudent provisioning; underlying ROTE*^7* 8.5%**
· *Stated result*: €954m (-21.9% Q2/Q2); stated revenues: €4,897m (-4.9%); stated GOI: €1,838m (-12.9%)
· *Underlying GOI stable* in Q2 (€2,130bn, -0.5% Q2/Q2), due to revenue stability (+0.1%) and very tight cost control (-1.9%)
· *Improvement in the cost/income ratio* of +1.2pt Q2/Q2 to 57.4%; positive jaws effect (+2.0pp)
· Underlying net income Group share down (-10.9%) as a result of increased provisioning (x2.5)
· Underlying earnings per share : Q2-20: €0.36, -10.1% Q2/Q2; H1-20; €0.53, -15.5% H1/H1
**Sustained activity in loans, deposits and insurance, strong recovery across all Crédit Agricole S.A. business lines at quarter end**
· *High level of customer acquisition* (+145,000 self-employed and individual customers in 2020 for LCL and +55,000 for CA Italia)
· *Q2/Q2 increase in AuM* (+7.1%), life insurance (+1.6%), loan outstandings excluding State guaranteed loans at LCL (home loans +7%, loans to small businesses +11%, and loans to corporates +6%), outstanding loans at CA Italia (+4.9%) and consolidated consumer finance outstandings (+2.2%).
· *Increase in inflows* at LCL (increase in on-balance sheet deposits of +13.6% and stability of off-balance sheet savings at -1.2%), and at CA Italia (increase in AuM of +5.4% and on-balance sheet deposits of 4.6%)
· Increased share of UL products in gross inflows (+12.4pp June/June to 41.6%) and in outstandings (+0.5pp June/June to 22.7%). Major rebound in post-lockdown property and casualty business, revenues proving resilient (-0.8% Q2/Q2)
· *Strong commercial activity in capital markets* (+44%) and robust activity in financing activities (+5.7%); prudent risk management (moderate VaR at €14m at 30 June)
· *Renewal of the partnership between Amundi and Société Générale* for five years.
**Increase in provisioning (x2.5), with half related to provisioning for proven risks and half to provisioning for performing loans**
· *Stable NPL ratio *(3.2%),* higher coverage ratio *(73.4%, +0.9pp vs. March 20); loan loss reserves of €10.1bn, of which 24% related to provisioning for performing loans; diversified loan book with 46% in corporate loans and 27% in home loans; 73% of EAD (exposure at default) investment grade
· *Increase in provisioning *(€908m, of which €236m for stage 1 and €667m for stage 3, x2.5 Q2/Q2, +46.2% Q2/Q1)
· H1-20 annualised cost of risk/outstandings 74bp
**Robust solvency**
· *Phased-in CET1 ratio up sharply (+0.6pp) to 12.0%, +4.1 above SREP requirement (+0.6pp June/March), *incorporating ECB regulatory adjustment measures (Quick Fix for +41bp) and the impact of the market upturn in the quarter on unrealised gains and/or losses on securities portfolios (+19bp). Provision for Q2 dividends of €0.16 per share. *Fully loaded ratio at 11.7%. *Pro forma phased-in ratio at 12.0% for the two-month period of SGLs.
· *RWA stable during the quarter: *decline in risk-weighted assets in the business lines (particularly SFS), with regulatory adjustment measures including supporting factor (-€2.6bn) and adjustements carried out by Crédit Agricole Corporate and Investment Bank (-€1.5bn) offsetting the increase in the equity-accounted value of Insurance (+€2.1bn). Pro forma for the two-month period of SGLs, decline in RWA of -€2.3bn.
**Increase in liquidity **
· *€405bn in reserves at 30/06, up €67bn vs. 31/03/2020. Increase in the LCR: 134.4%.^8*
· In June 2020,* significant drawdown of €90bn on the TLTRO III facility* to support loan activity and benefit from competitive refinancing costs; repayment of the TLTRO II (partially) and LTRO drawdowns.
· 96% of the €12bn MLT market funding programme completed at end-July.
**Switch activated because of tensions in the equity and bond markets during the half year. **
- Positive impact on Crédit Agricole S.A.’s cost of risk, restated for specific items, in the amount of €65 million (+€44m in net income Group share); impact on solvency non-material.
Crédit Agricole S.A.’s Board of Directors, chaired by Dominique Lefebvre, met on 5 August 2020 to examine the financial statements for the second quarter and first half of 2020.
*Credit Agricole S.A. – **Stated and underlying results, Q2-20 and Q2-19*
*€m* *Q2-20
stated* *Specific items* *Q2-20
underlying* *Q2-19
stated* *Specific items* *Q2-19
underlying* *Q2/Q2
stated* *Q2/Q2
underlying*
*Revenues* *4,897* *(288)* *5,185* *5,149* *(30)* *5,179* *(4.9%)* *+0.1%*
Operating expenses excl.SRF (2,980) (5) (2,976) (3,033) - (3,033) (1.7%) (1.9%)
SRF (79) - (79) (6) - (6) x 13.8 x 13.8
*Gross operating income* *1,838* *(293)* *2,130* *2,111* *(30)* *2,140* *(12.9%)* *(0.5%)*
Cost of risk (842) 65 (908) (358) - (358) x 2.4 x 2.5
Equity-accounted entities 88 - 88 108 - 108 (18.3%) (18.3%)
Net income on other assets 82 - 82 (1) - (1) n.m. n.m.
Change in value of goodwill - - - - - - n.m. n.m.
*Income before tax* *1,166* *(227)* *1,393* *1,861* *(30)* *1,890* *(37.3%)* *(26.3%)*
Tax (86) 72 (158) (485) 9 (494) (82.3%) (68.1%)
Net income from discont'd or held-for-sale ope. (0) - (0) 8 - 8 n.m. n.m.
*Net income* *1,080* *(155)* *1,235* *1,384* *(20)* *1,404* *(21.9%)* *(12.0%)*
Non controlling interests (126) 2 (129) (161) (162) (21.9%) (20.5%)
*Net income Group Share* *954* *(153)* *1,107* *1,222* *(20)* *1,242* *(21.9%)* *(10.9%)*
*Earnings per share (€)* *0.31* *(0.05)* *0.36* *0.39* *(0.01)* *0.40* *(22.0%)* *(10.1%)*
*Cost/Income ratio excl. SRF (%)* *60.9%* * * *57.4%* *58.9%* * * *58.6%* *+2.0 pp* *-1.2 pp*
*Net income Group Share excl. SRF* *1,020* *(153)* *1,173* *1,227* *(20)* *1,247* *(16.8%)* *(6.0%)*
**Results**
*In the second quarter of 2020*, Crédit Agricole S.A.’s *stated net income Group share* amounted to *€954 million* versus €1,222 million in the second quarter of 2019. This quarter, *specific items* generated a *net negative impact of -€153 million on net income Group share*.
Excluding these specific items, the *underlying net income Group share*^9 was *€1,107 million*, down -10.9% compared to second quarter 2019. This decline was mainly due to the increased cost of risk. Half of that increase was related to provisioning for proven risks and the other half to the updating of the parameters for calculating provisioning for performing loans in the current context.
This quarter,* specific items* for this quarter (-€153 million on net income Group share) include the impact of the cooperative support given to SME and small business customers with business interruption insurance amounting to -€2 million in LCL revenues and -€143 million in insurance revenues (impact on net income Group share of respectively -€1 million and -€97 million), and the impact of the cash adjustment on the Liability Management transaction carried out by Crédit Agricole S.A. at the beginning of June 2020 (-€41 million in revenues and -€28 million in net income Group share). The recurring accounting volatility items are to be added with a net negative impact of -€68 million on net income Group share, namely DVA (Debt Valuation Adjustment, i.e. gains and losses on financial instruments related to changes in the Group’s issuer spread), in addition to which the Funding Valuation Adjustment (FVA) portion associated with the change in the issuer spread, which is not hedged, totalling -€5 million, the hedge on the Large Customers loan book for -€50 million, and the change in the provision for home purchase savings plans for -€14 million. Specific items also include integration costs for entities recently acquired by CACEIS (Kas Bank and S3) for -€5 million in operating expenses and -€2 million in net income Group share. The activation of the Switch guarantee in second quarter 2020 generated a positive impact on cost of risk amounting to +€65 million in the Asset gathering business line. In second quarter 2019, specific items had a *net negative impact of ‑€20 million on net income Group share*; they included only recurring accounting volatility items such as the Debt Valuation Adjustment (DVA, i.e. gains and losses on financial instruments related to changes in the Group’s issuer spread) amounting to -€3 million, the hedge on the Large Customers loan book for -€6 million, and the change in the provisions for home purchase savings schemes in the amount of -€11 million.
Sub-division results were impacted in second quarter 2020 by the two-month lockdown related to the COVID-19 crisis in France and in most European countries, which generated a near-shutdown of economies at the end of the first quarter 2020 and beginning of the second quarter. Nevertheless, *gross operating income* stood firm in the quarter at €2,130 million (-0.5% compared to second quarter 2019) thanks to stable revenues (+0.1% at €5,185 million) and tight cost control by the business lines (-1.9% at €2,976 million). This attests for the excellent operational efficiency of the Crédit Agricole S.A. business lines, with the cost/income ratio improving by 1.2 percentage points in second quarter 2020 compared to second quarter 2019. *Underlying net income Group share* was, however, down by -10.9%. This decline was due to the increase in the cost of risk, which amounted to €908 million in second quarter 2020 (x2.5 compared to second quarter 2019), half of it due to the increase in provisioning for proven risks and half to the updating of the parameters for calculating provisioning for performing loans. The Large customers business line, despite strong growth in gross operating income (+26.7%), was impacted by the five-fold increase in the cost of risk. It ended by posting a decrease in net income Group share of -5.3%. The Retail banking and Specialised financial services business lines were heavily impacted by the two-month lockdown and substantial increases in the cost of risk. They posted declines in their net income Group share of -39% and -27.9% respectively. By contrast, the Asset Gathering business line recorded an increase in its net income Group share for the quarter (+11.0%), benefiting from more favourable market conditions during the period which offset the adverse impact of the first quarter.
In the second quarter 2020, *underlying revenues* stood at €5,185 million, relatively unchanged from second quarter 2019 (+0.1%). The Asset Gathering business line recorded a moderate increase in revenues of +1.5%: insurance posted a sharp increase of +13.5%, benefiting from a market effect that was more positive in the second quarter than the first (€140 million in second quarter), while asset management (-7.5%) was adversely impacted by a drop in net management fee and commission income despite a solid level of performance fee and commission income and better financial results. Retail activities (Retail banking and Specialised financial services) were heavily impacted by the near-shutdown of economies and respectively recorded a drop in their underlying revenues of -6.6% and -11.7%. Conversely, activity for Corporates and Institutionals was particularly buoyant this quarter, generating high levels of revenues for the Large Customers business line. The exceptional activity in Capital Markets generated an increase in revenues of +44% in second quarter 2020 compared to second quarter 2019. Financing activities also saw a strong level of activity in the period, recording a revenue increase of +5.8%. Lastly, activity for the asset servicing was up +23.9% due to the addition of new customers and a scope effect related to acquisitions at year-end 2019. Recurring revenues, i.e. revenues attached to an inventory item (outstanding loans/customer assets, assets under management) or an insurance policy (property and casualty insurance, death and disability insurance), accounted for 77% of total revenues.
*Underlying operating expenses excluding SRF* were down -1.9% for the period, resulting in indicators showing excellent levels of operating efficiency: the cost/income ratio was 57.4%, an improvement of +1.2 percentage points compared to second quarter 2019, while the jaws effect was positive at 1.3 percentage points. With the exception of the Large Customers business line, which posted an increase of +7.0% in its expenses excluding SRF (primarily related to a base effect in Corporate and Investment Banking: a provision write-back on staff costs in the second quarter 2019 and a scope effect related to the latest acquisitions in Asset servicing), all other business lines recorded a decrease in their expenses excluding SRF for the quarter. The Asset Gathering business line recorded a decrease of -3.7%, driven by Asset Management (-7.5% due to a decrease in variable compensation and ongoing cost synergies achieved following the integration of Pioneer), which offset the increase recorded by Insurance (+4.1%, related mostly to an increase in headcount to support sub-division development). The Retail Banking business line posted a decrease in its expenses excluding SRF for the quarter (-4.6%), as a result of lower personnel expenditure in France and savings achieved on external expenditure and travel in Italy. Similarly, Specialised financial services saw their expenses excluding SRF fall by -6.2% in the quarter, due in particular to strict cost control at CA Consumer Finance. Of the €57 million reduction in underlying expenses excluding SRF between the second quarter 2019 and second quarter 2020, the COVID-19 crisis generated a fall in expenses of -€23 million, comprising -€80 million in avoided expenditure (travel and external expenses) and +€57 million in increased expenditure for employee safety. SRF contribution has been completed this quarter by additional €+79 million (vs. €6 million in the second quarter 2019).
Accordingly, *underlying gross operating income* came in high at €2,130 million, down slightly by -0.5% compared to second quarter 2019, but nevertheless resilient given the context of the public health crisis and the two-month lockdown in France and Italy: +20.9% for the Large customers business line, +6.5% for Asset gathering, -11.7% for Retail banking and -16.7% for Specialised financial services. Excluding the SRF contribution, the underlying gross operating income was up +2,9% to €2,209 million, compared to the second quarter 2019.
As of 30 June 2020, risk indicators once again attested for Crédit Agricole S.A.'s assets‘quality and the level of its risk coverage. The loan portfolio is diversified, largely oriented on large corporates (46% of gross outstandings at Crédit Agricole S.A. level) and housing loans (27%). The doubtful loan ratio was still low at 3.2% (+0.1 percentage point compared to 31 March 2020), while the coverage ratio was 73.4% (up +1.0 percentage point for the quarter with total loan loss reserves of €10.1 billion). Of these loan loss reserves, 24% were for provisioning for performing loans. *Cost of risk* was up significantly (x2.5/-€550 million to ‑€908 million, versus ‑€358 million in second quarter 2019 and ‑€621 million in first quarter 2020). Of this increase, 48% was due to additional provisioning for performing loans (Stages/Buckets 1 and 2) triggered by the application of IFRS 9 rules and an updating of the provisioning parameters, and 52% was due to increased provisioning for proven risks (Stage/Bucket 3). The expense of ‑€908 million in second quarter 2020 consisted of provisioning for performing loans (Stages 1 and 2) for -€236 million (versus a write-back of -€26 million in second quarter 2019 and an allocation of -€223 million in first quarter 2020) and provisioning for proven risks (Stage 3) for -€667 million (versus -€371 million in second quarter 2019 and ‑€382 million in first quarter 2020). The cost of risk relative to outstandings in the first half was 74 basis points annualised (55 basis points over a rolling four-quarter period and 86 basis points for the second quarter annualised). The four business lines that contributed the most to the cost of risk show similar variations. LCL’s cost of risk stood at ‑€117 million (x2.3 compared to second quarter 2019 and +16.3% relative to first quarter 2020), with cost of risk relative to outstandings increasing to 33 basis points on an annualised half-year basis (26 basis points over a rolling four-quarter period and 35 basis points for the second quarter 2020 annualised) ; CA Italia recorded a cost of risk of -€146 million in second quarter 2020, or 2.4 times the level of second quarter 2019, and an increase of +77.5% over first quarter 2020, with its cost of risk relative to outstandings increasing to 102 basis points on an annualised half-year basis (79 basis points over a rolling four-quarter period and 129 basis points for the second quarter 2020 annualised); Crédit Agricole Consumer Finance posted a +85.1% increase in its cost of risk to -€218 million compared to second quarter 2019 (and +32.8% compared to first quarter 2020), with a cost of risk relative to outstanding also increasing to 211 basis points on an annualised half-year basis (172 basis points over a rolling four-quarter period and 241 basis points for the second quarter 2020 annualised). Lastly, in financing activities, the cost of risk for the quarter stood at -€312 million, versus an allocation of just -€39 million in second quarter 2019, which was 2.3 times the level of first quarter 2020. The cost of risk relative to outstandings for financing activities was therefore 78 basis points on an annualised half-year basis (50 basis points over a rolling four-quarter period and 102 basis points for the second quarter 2020 annualised).
Starting in the first quarter of 2020, the context and uncertainties related to the global economic conditions were gradually taken into account and the expected effect of public measures were incorporated to anticipate future risks. Provisioning levels were established to reflect the sharp deterioration in the environment, taking into account several weighted economic scenarios and applying flat rate adjustments for the retail banking portfolios and corporates portfolios and specific additions for some targeted sectors, namely tourism, automotive, aerospace, retail textile, energy, and supply chain. Several weighted economic scenarios were used to determine the provisioning of performing loans, of which a more favourable scenario (GDP at -7% in France in 2020, +7.3% in 2021 and +1.8% in 2022) and a less favourable scenario (GDP at -15.1% in France in 2020, +6.6% in 2021 and +8% in 2022).
The contribution of *equity-accounted entities* was down *-18.3%* to €88 million, reflecting in particular the reduction in the contribution from the joint ventures to consumer finance (-22.7% in second quarter 2020 compared to the same quarter in 2019, largely related to an increase in the cost of risk at Wafasalaf amounting to €26 million), despite a slight increase in the contribution from joint ventures to asset management (+26.6%).
*Net income on other assets* showed a positive impact of +€82 million in the quarter which was mostly due to the gain recorded by CA Italia on the sale of a real estate asset for +€65 million.
*Underlying income^10 before tax, discontinued operations and non-controlling interests thus decreased by -26.3% *to €1,393 million. The *underlying effective tax rate* stood at *12.1%*, down -15.6 percentage points compared to second quarter 2019, while the underlying tax charge fell -68.1% to -€158 million. The 2020 second quarter tax rate was impacted in particular by the decrease in the tax rate in France effective 1 January 2020 (32.02% instead of 34.43%), by the positive effect of international subsidiaries being subject to a lower tax rate than in France and by a €63-million tax refund for Agos related to Italy’s affrancamento tax redemption scheme. The *underlying net income before non-controlling interests was therefore down -12.0%*.
*Net income attributable to non-controlling interests* was down -20.5% to €129 million. This was due to several opposing effects: firstly, the decline in minority interests primarily in the case of Amundi (‑9.7%) and CA Italia (-57.0%), and secondly, the increase in the share attributable to non-controlling interests in favour of Santander in the case of CACEIS (+79.0%).
*Underlying net income Group share* was down *-10.9%* from second quarter 2019 to *€1,107 million*. Excluding SRF contribution, it is down by -6.0%.
*Credit Agricole S.A. – **Stated and underlying results, H1-20 and H1-19*
*€m* *H1-20
stated* *Specific items* *H1-20
underlying* *H1-19
stated* *Specific items* *H1-19
underlying* *H1/H1
stated* *H1/H1
underlying*
*Revenues* *10,097* *(225)* *10,322* *10,004* *(78)* *10,081* *+0.9%* *+2.4%*
Operating expenses excl.SRF (6,235) (65) (6,170) (6,136) - (6,136) +1.6% +0.5%
SRF (439) - (439) (337) - (337) +30.0% +30.0%
*Gross operating income* *3,423* *(290)* *3,713* *3,530* *(78)* *3,607* *(3.0%)* *+2.9%*
Cost of risk (1,463) 65 (1,529) (582) - (582) x 2.5 x 2.6
Equity-accounted entities 178 - 178 193 - 193 (7.7%) (7.7%)
Net income on other assets 87 - 87 22 - 22 x 4 x 4
Change in value of goodwill - - - - - - n.m. n.m.
*Income before tax* *2,226* *(224)* *2,450* *3,163* *(78)* *3,240* *(29.6%)* *(24.4%)*
Tax (347) 55 (401) (880) 23 (903) (60.6%) (55.6%)
Net income from discont'd or held-for-sale ope. (1) - (1) 8 - 8 n.m. n.m.
*Net income* *1,879* *(170)* *2,048* *2,291* *(54)* *2,346* *(18.0%)* *(12.7%)*
Non controlling interests (287) 3 (290) (307) 1 (308) (6.4%) (5.6%)
*Net income Group Share* *1,592* *(167)* *1,758* *1,985* *(53)* *2,038* *(19.8%)* *(13.7%)*
*Earnings per share (€)* *0.47* *(0.06)* *0.53* *0.61* *(0.02)* *0.63* *(22.4%)* *(15.5%)*
*Cost/Income ratio excl.SRF (%)* *61.7%* * * *59.8%* *61.3%* * * *60.9%* *+0.4 pp* *-1.1 pp*
*Net income Group Share excl. SRF* *1,984* *(167)* *2,151* *2,297* *(53)* *2,350* *(13.6%)* *(8.5%)*
Stated net income Group share *in the first half of 2020* amounted to €1,985 million, compared with €2,038 million in the first half of 2019, a decrease of -19.8%.
*Specific items in the first half of 2020* had a negative impact of *-€167 million *on stated net income Group share. In addition to the second quarter items already mentioned above, first quarter 2020 items had a negative impact of -€54 million and corresponded to recurring accounting volatility items, i.e. the DVA for -€14 million, hedges of the Large customers loan book for +€81 million, and changes in the provision for home purchase savings plans for -€7 million at LCL and -€20 million in the Corporate Centre business line. *Specific items in the first half of 2019* had a negative impact of -€53 million on net income Group share. Compared to specific items in second quarter 2019 already mentioned above, these items had an impact of -€33 million on net income Group share in first quarter 2019 and corresponded to recurring accounting volatility items, i.e. the DVA for -€6 million, hedges of the Large Customers loan book for ‑€14 million, and changes in the provision for home purchase savings plans for -€5 million at LCL and -€8 million in the Corporate Centre business line.
Excluding these specific items, *underlying net income Group share amounted to* *€1,758 million*, down *-13.7%* compared to the first half of 2019.
*Underlying earnings per share came to €0.53 per share*, a decrease of *-15.5%* compared to the first half of 2019.
Annualised *RoTE*^11 (return on tangible equity Group share excluding intangibles) net of coupons on Additional Tier 1 securities stood at 8.5% *in the first half of 2020*, lower than in financial year 2019 (11.0%). Annualised RoNE (Return on Net Equity) of the business lines was stable or down this half year compared to 2019, in line with the decline in results.
*Underlying revenues* were up *+2.4%* from first half 2019, due to significant growth in revenues in the Large customers business line (+15.0%). Retail activities, on the other hand, were severely hit by the public health crisis (Retail banking -3.0% and Specialised financial services -8.3%) and revenues of the Asset gathering business line were heavily impacted by a negative market impact (-4.3%).
Underlying *operating expenses* were stable overall (limited growth of *+0.5%*, excluding the SRF contribution, which was up significantly by +30.0% to €439 million in first half 2020 versus €337 million in first half 2019). The *underlying cost/income ratio excluding SRF* was *59.8%*, an improvement of +1.1 percentage point. Excluding the SRF contribution, the underlying gross operating income was up +5.3% to 4,152 million, compared to the first half-year 2019.
Lastly, *cost of risk* was up sharply (x2.5/-€947 million, to -€1,529 million versus ‑€582 million in first half 2019).
**Activity **
*Business remained buoyant throughout the quarter, due to the positive performance of Asset under management in Asset management (+7.1%) and life insurance (+1.6%), of outstanding loans in retail banking (+7% at LCL excluding State guaranteed loans and +4.9% at CA Italia) and of consolidated consumer finance outstandings (+2.2%). Inflows increased at LCL (increase in on-balance sheet deposits of +13.6% and stability of off-balance sheet deposits at -1.2%), and at CA Italia (increase in AuM of +5.4% and on-balance sheet deposits of 4.6%). The share of UL products in gross inflows was up (+12.4 percentage points from second quarter 2019 to 41.6%), as was the share in outstandings to 22.7% (+0.5 percentage point from second quarter 2019). Revenues from personal protection insurance held firm (-3.5% compared to second quarter 2019), as did that from property and casualty insurance (-0.8% compared to second quarter 2019). Gross customer acquisition showed strong momentum (+145,000 small businesses and individual customers in 2020 at LCL and +55,000 customers at CA Italia) and the customer base continued to expand (+10,000 customers at LCL in 2020 and +1,500 at CA Italia). Commercial activity was exceptionally buoyant in capital markets (+44% compared to second quarter 2019) and robust in financing activities (+5.7%), while risk management remained cautious (moderate VaR at €14m at 30 June). *
*Business picked up sharply in June, with an increase in home loan simulations at LCL (+38.8% between March and June 2020), a rise in commercial production in Specialised financial services (+170% for CA Consumer Finance and +90% in leasing for CAL&F between April and June 2020) and an increase in the volume of new business in property and casualty insurance (+63% between March and June 2020). *
- *In Savings/Retirement*, outstandings (savings, retirement and death & disability) were up +1.6% compared to June 2019 at €302.1 billion, including €68.5 billion in unit-linked contracts, up +3.9% year-on-year. Unit-linked contracts accounted for 22.7% of outstandings, up +1.2 percentage point compared to first quarter 2020. Premium income increased to €3.8 billion for the second quarter 2020 (down -51.8% compared to the second quarter 2019), and total net inflows were negative at -€0.9 billion, down -€4.3 billion compared to the second quarter 2019. The quarter was nonetheless characterised by outflows in euros (-€1.8 billion) and positive net inflows in unit-linked contracts (+0.9 billion). UL contracts accounted for 41.6% of gross inflows in the quarter, up +12.4 percentage points compared to second quarter 2019 and +0.3 percentage point compared to the previous quarter. The solvency of Crédit Agricole Assurances is at a comfortable level, exceeding 233%, well above the upper limit of our control range 160%-200%. The Policy Participation Reserve (PPE) reached €11.5 billion as of 30/06/2020, i.e. 5.5% of total outstanding, increased by €0.6 billion. This PPE can be used to support the average annualised rate of return on assets for euro-denominated contracts, which reached 2.50%^12 as at 30/06/2020, i.e a level still significantly above the average guaranteed minimum rate (0.28% at end-2019).
*In property and casualty insurance*, Crédit Agricole Assurances recorded a slight decrease in premiums, down -0.8% in the second quarter 2020 compared to the second quarter 2019. Pacifica recorded a net increase of +43 000 contracts over the quarter, reaching nearly 14.2 million contracts at end-June 2020, or a +3.1% increase year-on-year. The equipment rate for individual customers^13 increased in the LCL network (25.2% at end-June 2020, i.e. a +0.6 percentage point increase since June 2019) and the Regional Banks networks (41.0% at end-June 2020, i.e. a +1.0 percentage point increase since June 2019), as well as in CA Italia (15.9% at end-June 2020, i.e. a +1.3 percentage point increase since June 2019). The combined ratio remained under control at 97.7%, a slight increase of +2.5 percentage points year-on-year. In *death & disability/creditor and group insurance*, turnover reached nearly €958 million this quarter, down -3.5% compared to second quarter 2019.
· This quarter, *Asset management (Amundi)* recorded limited net outflows, despite the unprecedented context (-€0.8 billion), and a good momentum in inflows on medium and long-term (MLT) assets (+€3.5 billion). MLT inflows from retail customers (excluding Joint Ventures) remained resilient at -€1.7 billion with good resistance in the networks (in France with +€1.2 billion and internationally with -€0.1 billion); in the Third Party Distributors segment, outflows in the quarter (-€2.7 billion) were concentrated in April, and inflows returned to positive in June. Net inflows were good in Joint Ventures (+€3.1 billion) and dynamic in institutional and corporate MLT (+€4.6 billion), due to a recovery in risk appetite among institutional and sovereign customers. Assets under management thus remained at a high level at €1,592 billion at end-June 2020, up +7.1% compared to end-June 2019. The market effect on assets under management was +€64.9 billion compared to March 2020. This quarter also saw the renewal of the partnership between Amundi and Société Générale for another five years.
· *Retail banking *maintained a good resilience of its activity. Home loan production was down for LCL (-9.8% in second quarter 2020 compared to second quarter 2019), but remained stable for CA Italia (-0.8% this quarter, but home loan production clearly recovered in June, up +26.9% compared to April 2020). However, outstanding loans continued to increase in Retail banking: in France, for LCL, with a +11.2% increase in loans at end-June 2020 compared to end-June 2019, driven in particular by home loans (+8.5%), corporate loans (+18.0%) and small businesses (+27.3%), as well as in Italy, for CA Italia, with a +4.9% increase in loans at end-June 2020 compared to end-June 2019, driven by loans to individuals (+4.2%) and loans to small businesses (+1.5%), in addition to loans to large corporates and SMEs (+8.9%), and, finally, for all International retail banking excluding Italy, with loan growth of +1.8% at end-June 2020 compared to end-June 2019, driven in particular by Egypt (+19.0%^14) and Morocco (+3.8%^14), despite a decline in Ukraine (-10.8%^14) and Poland (-3.4%^14). In France, renegotiations on LCL home loans were down this quarter to €0.6 billion outstanding for the quarter, compared to €0.9 billion in first quarter 2020, i.e. a difference of €0.3 billion, and remained well below the high point of €5.2 billion of fourth quarter 2016. Off-balance sheet deposits remained stable for LCL (-0.7%), affected by a still negative market impact, despite an upturn this quarter, and were up for CA Italia (+4.6%). On-balance sheet deposits were up in all markets, from +13.1% compared to June 2019 for LCL in France, in particular stemming from an increase in personal savings driven by demand deposits (+28.2%) and passbooks (+4.9%). They went up +4.6% for CA Italia, driven in particular by the increase in deposits from corporates since the beginning of the year; and lastly, up +5.5% for all International retail banking excluding Italy, driven by Morocco (+7.5%^14) and Ukraine (+11.4%^14). The equipment rate in automotive, multi-risk household, healthcare, legal or accident insurance is up for LCL at 25.2% (+0.6 percentage point) and CA Italia 15.9% (+1.3 percentage point).
· *Within the Specialised financial services* business line, *commercial sales* *at CA Consumer Finance* totalled €7.1 billion, down 40% compared to second quarter 2019, notably due to a decline at *Agos* (-51%) and *automotive partnerships* (-43%, of which -51% at FCA Bank). The *contributions* *of the Regional Banks and of LCL* also fell sharply (-41.3% and -40%, respectively). The slowdown in activity at GAC Sofinco was more moderate, with a -10% decline in commercial business compared to second quarter 2019. More generally, *activity has been buoyant again since June*, with CA Consumer Finance's commercial production up +170%/+€2.3 billion between April 2020 and June 2020 (219% in France and 145% internationally). More specifically, production in China increased by +97% between March 2020 and June 2020. CA-CF also continued to support their customers during this period by granting 40,000 moratoria. Against this backdrop, *gross managed loans* totalled €88.4 billion and were down -2.4% compared to second quarter 2019, with a lower contribution from *automotive partnerships *(-6.6%) and a higher *contribution from Group entities* (+1.9%). Gross *consolidated loans* were stable compared to second quarter 2019 (+0.2%) at €34.3 billion. *CAL&F's production* also declined compared to second quarter 2019. Indeed, *commercial production in factoring* was down (-9.2% to €3.8 billion) notably in *France* (-51% to €1.8 billion). By contrast, *international* production increased by €1.6 billion to €1.9 billion, due to the start of major contracts in Germany. In this context, *factored revenues* were down over the period (-24.6% compared to second quarter 2019 at €15.5 billion). Moreover, *new commercial production in leasing* reached €1 billion, down -23.9% compared to second quarter 2019, particularly in *France* and *Poland* (-€215 million and -€84 million, respectively) although business has been picking up since June with a +90% increase in production between April 2020 and June 2020. Lastly, *leasing outstandings* settled at €15.1 billion, an increase of +2.2% compared to second quarter 2019.
· The activity of the *Large customers* business line was very dynamic this quarter, with underlying* revenues* up in second quarter 2020 compared to second quarter 2019 (+20.9% at €1.8 billion) especially in *Capital Markets and Investment banking *(+38% at €780 million, of which +44% for Capital Markets) due to a *strong contribution from all the sub-divisions*. *Bond originations* showed *record activity*, with business volumes doubling compared to second quarter 2019. *Crédit Agricole Corporate and Investment Bank's leading positions* were confirmed in this segment (No.1 in All French Corporate bonds, No.1 in Global Green, Social and Sustainability bonds^15). The *Fixed Income Credit and Change* (FICC) sub-division also delivered a *very good performance* (+44% growth in revenues including CVA in second quarter 2020 compared to second quarter 2019), demonstrating the *effectiveness of our relationship model*. Regulatory *VaR* at 30 June 2020 was up moderately and *remains at a low level*, in line with *our prudent risk management* (€14 million as of 30 June 2020 vs. €22.2 million as of 31 March 2020, average regulatory VaR: €18.8 million in Q2-2020 compared to €11.4 in Q1-2020). *Financing activities* reported higher underlying revenues (+5.8% compared to second quarter 2019) at €720 million due to its ability to *mobilise the full range of financing solutions for customers* (underwriting, club deal and bilateral loans). In particular, the performance was very good on *syndicated loans*. Crédit Agricole Corporate and Investment Bank *strengthened its market share* in this business (7.6% compared to 6.9% at end-June 2019^16) and thus became the *second largest player in the EMEA syndicated loan market*. Overall, *commercial banking* revenues rose +22.4% to €408 million. *Structured finance* recorded a decline in revenues (-10.2%) due to the economic slowdown in activity. Furthermore, in line with its Originate to Distribute model, financing activities recorded an average primary payout ratio