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Credit Agricole SA
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Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Crédit Agricole Fourth Quarter and Full Year 2018 Results Conference Call. [Operator Instructions] I must advise you the conference is being recorded today, Thursday the 14th of February, 2019. [Operator Instructions]
Yes. I think we can start this meeting. Philippe Brassac speaking. Good afternoon, everyone, and thank you so much for being present for this meeting. With Jérôme -- we are really, very pleased to comment you our main results, our main figures for the fourth quarter and for the full year 2018. And of course, we shall try to answer all your questions, but before giving the floor to Jérôme, I would like to state some clear [ pre-game ] messages about these results. The first one is that as you can see that despite uncertainties all around the earth, despite tough conditions notably on market activities, our performance for Crédit Agricole S.A. -- for Crédit Agricole group too, but today, we shall speak about Crédit Agricole S.A. Our performances is at -- is regular once again and is once again balanced, that means that notably for our profitability and the level of profitability is good for each of our division, each of our business line. And we would like to highlight that this is probably mainly due to the relevance of our model. We like to repeat through that -- through the model, the historical model of Crédit Agricole is the universal bank, because according to us, universal bank means the ability to create a global, complete and sustainable lasting relationship with each of our customer. And just to explain that, within the group, there is no matter about cross selling. There's only global approaches. There's only global selling. It's very important point on which I wanted to highlight this ability of the model to deliver regular results.The second message is about what you can report about our fourth quarter. During this fourth quarter, we proved our agility to adapt our bases of course to an environment that was harder. And notably, for capital market activities, but that means for asset management activities too, of course. As you could probably see that we succeeded despite the environment that was not too good to slightly increase the level of our revenue, and we succeeded to master cost, we succeeded to reduce cost within each of our divisions, notably if you -- the rationale excluding scope effects on the cost.So the first point is about the regularity of our [ revenue discipline point ] is about the agility of our management of the situation. The third and last point is about our Medium-Term Plan. As we committed that, we already manage within the group the fact that we want to be prudent. We already prudent in each of our activity. We gave priority to organic growth. It's a choice. We kept this choice to give all this priority to organic growth and many -- we have committed to be, really simple, customer focused.I wanted to highlight that these are not very spectacular strategy, but it works. I would like to highlight that it works. And as you can see that, we have the commission momentum that is as good as the level of our financial performance. What I mean by that, we never have to forget that attractiveness, commercial attractiveness is always the real change for development and profitability. And so in conclusion of this introduction, I would like to tell you that, of course, we are simply very happy, having reached main targets of 2019 as soon as 2018. And so very naturally, we shall have to present -- we shall have the pleasure to present you a new plan for 2022. And we show that on June -- the 6th of June, and of course, you are all invited to this event. I can't tell you anything about the -- this day -- this Investor Day, simply that, of course, we shall try to go, once again, further, to go, once again, higher, and we'd like simply to say -- tell you that I'm very optimistic for the future, not because forecast are simple about the future, but simply because our models and our main strategy are relevant to face any kind of ground. And thanks to this strategy, thanks to this continuity, I'm sure that you shall -- you will appreciate this Investor Day on which -- within which we shall be able to give you all our ambitions for 2022.So now we come back to our result, and I give the floor immediately to Jérôme.
Thank you, Philippe. And good afternoon to every one of you. Let me start with the main messages that you can have in order to assess properly this year 2018. I think, for us, it's been a year of good customer acquisition and good customer-focused development. We managed to attract as much as 1.8 million new customers in our different retail networks in France and Italy, which is quite impressive, actually, at a time where everybody speaks about the attractiveness of -- excuse me, I don't have any screen in front of me in order to check which is the slide which is presented.So in a period of time where everybody's talking about digital banks and newcomers, we launched successfully, many, many new offers in order to continue to satisfy our different customer bases. It's been also a year of integration after quite -- some quite significant acquisitions in 2017. We achieved and completed the integration of Pioneer within Amundi of the 3 Regional Banks that we got in Italy of the different operations that we purchased in Private Banking. And it's been a year also, where we put in place some new engines for our future growth in the conclusion of different partnerships, be it in the field of payment services; in the field of insurance, with the acquisition of 25% -- an additional 25% of our subsidiary in Portugal; and the partnership with CreVal; and in the consumer credit business in Italy with the renewal and the extension of the partnership with Banco BPM; and the launching of a new joint venture with Bankia in Spain.It's been a year also, where we achieved most of the 2019 financial targets, as Philippe said, and it's been also a year where we strengthened further our robustness, our financial solidity.Philippe stated, this quarter was quite challenging in the markets, so leading to additional pressure on the revenues of some of our business lines, capital market activities or Amundi, but all in all, we managed to navigate quite nicely, I would say, across this quarter with a net profit of EUR 1.1 billion underlying as well as stated, it's up 21.5% for the underlying basis as compared to Q4 2017. The cost control has been quite confirmed, I would say, and we also managed to keep the solvency of Crédit Agricole S.A. at a high level, 11.5% and the one of the group to increase it a little bit further at 15% CET1 ratio.I will not describe, of course, these elements, but this shows only the -- a quite challenging environment through which we had to navigate in the fourth quarter.The main figures of the profitability are here, both for the group and for the S.A., for the quarter and for the full year and the stated and the underlying figures. What you can see is that we are almost everywhere up and sometimes quite significantly for the listed entity, Crédit Agricole S.A., as 21.5% increase for the underlying performance for the quarter and plus 12% -- 12.2% for the full year at EUR 4.4 billion of net profit. This is leading to a dividend per share that is going to be proposed by the board to the General Meeting Assembly in May of EUR 0.69 a share, which is up 9.5% as compared to the EUR 0.63 that we had last year. And the underlying return on tangible equity stands a little bit above 12.5%, which is obviously far above the target of at least 10% that we posted in our new -- in our latest Medium-Term Plan. This 12.7% return on tangible equity, as Philippe mentioned it, has been reached with a nice balance of performances in every business line and actually all the performances are, I would say, between 10% and 25%. So there is no area in which we have an issue to solve. All the businesses are performing. Of course, retail banking activities are a little bit, and have been in the last few years, a little bit more under pressure than other activities, but nevertheless, I think that considering their cost of equity, the performances are quite satisfying and are due to continue to improve going forward.Talking about the Medium-Term Plan, I think that it's fair to assess that the different objectives that we had set, be it financial objectives or nonfinancial objectives, are either reached or well on their way. It's the case for all the, I would say, the structure of the group, be it in terms of financial structure or also be it in terms of strategic priorities and strategic focus, it's true. So from a customer point of view, we've good dynamic in terms of our capacity of attracting new customers in our different retail banks in France and Italy. It's also the case from an operational efficiency viewpoint, and we had announced a few years ago the launching of several savings and efficiency plans, which are either completed or on their way with already a significant contribution to the customer monitoring -- the global customer monitoring at group level. And finally, revenue synergies are also now close to the 2019 target at EUR 8.7 billion out of a target of EUR 8.8 billion.In terms of financials, we already said it. I'm not going to read all the figures of this slide. What you can see is that at the level of the listed entity with slight exceptions, which is the cost/income ratio, but obviously, this is vastly due to the rate environment that we had, which put some pressure on the revenues in the retail banking activities, but for all the other objectives, we are already done with the 2019 targets. And actually, this is why we are now pleased to announce that we are going to present the new and next Medium-Term Plan on June the 6th in Montrouge. We are going to adapt to the Brexit -- or the Brexit possibility and to do it in France next time.If we go down a little bit more precisely on the performance of the full year and the performance of the quarter. What is important to note on this page is that actually the 12.2% improvement that we had from an underlying profit point of view in the full year 2018 was reached with contribution of all business lines, be it the asset-gathering division, retail banking -- excuse me, retail banking activities, specialized financial services, large customers and also the Corporate Centre, which continued to improve. And in the fourth quarter, actually with the exception of the asset gathering division and namely with Amundi, to be frank, but you know perfectly the figures of Amundi, which published its results yesterday, again, all business lines continue to improve in the fourth quarter of this year.Revenue-wise, the full year was quite dynamic with top line growing by close to 5% on an underlying basis and close to 6% on a stated basis. Of course, the last quarter was a little bit more difficult for the reasons that you know in -- within asset management and within CIB, but nevertheless, we continue to improve the retail banking division, SFS division and also the Corporate Centre.In terms of costs, what is important to note is that for the full year, the evolution was significantly below the evolution of the top line, 3.8% as compared to close to 5% on an underlying basis and 3.1% as compared to close to 6% on a stated basis.So it's a very positive growth effect, which helped, of course, to continue to improve the cost/income ratio. As far as the last quarter of the year is concerned, stated costs are down 1.7%, underlying costs are up 4.8% and actually within this EUR 25 million increase in the cost base, EUR 15 million is simply the provisioning of the [Foreign Language] that we are going to pay to some of our employees in March this year. So it's actually a very stable cost basis, especially in the context of this quarter. And in addition, as Philippe stated, if you try to carve out the scope effect from these figures, costs were down Q4-on-Q4.Cost of risk is also significantly down, stable on the parameter of the whole group, including the Regional Banks, but actually down 6 bps as compared to 2017 on the parameter of Crédit Agricole S.A. It's now a very low level of 23 bps for the full year 2018, which is, obviously, the translation of an environment, which has been quite benign from a risk viewpoint, but also the translation of our prudent policy.If we zoom on the cost of risk by business line, you see that within LCL, it's quite stable actually, it's very steady and stable at a low level. In the Retail Banking activities in Italy, it continues to decline, and it's now at 67 bps. So it's getting close to the target that we have in mind of 60 bps, of being below 60 bps.In the consumer credit businesses, I would say, more or less stable around low level. I had said that in the previous quarters that actually with IFRS 9, we are going to have some volatility because we have to learn to live with the IFRS 9 and the provisioning of Bucket 1 and Bucket 2 exposures. So I will not be surprised by some volatility around this low level in the coming quarter, but it's quite low from a historical viewpoint. And lastly, for the CIB financing activities, we are now, for the third quarter in a row, with a reversal, actually, of loan losses provisions. And so this is leading to full year of reversal in average. Of course, this is not going to last forever, but this is the situation of 2018 clearly.If I go now to the performance by -- for each business line, starting with the asset-gathering division, you perfectly know that 2018 was a quite bizarre year with a good commercial performance, with significant inflows throughout the year, but a very negative market effect in the last quarter of the year. And this is what you can see on this slide with, actually, assets under management globally up 3.5% for the first 9 months of the year and only up 0.6% for the full year with more than EUR 50 billion of negative market effect -- market and ForEx effect in the fourth quarter and especially, in the last month of the fourth quarter, actually.In terms of profitability, of course, there has been a hit on the profitability of Amundi this quarter, as you know, but on -- for the full year, the profitability of this business division continues to improve.The insurance activities are growing nicely, I would say, once again, with a level of turnover, which is hitting a new record at EUR 33.5 billion in total, adding up life and nonlife premiums. And the situation is actually quite positively oriented, both for protection, P&C and life insurance activities. What you can see on the third quarter is that we continue to have a good dynamic of units in products, net inflows, but in addition to that, we have seen a pickup in the inflows coming in euro contracts.From a profitability viewpoint, actually the net income is up both for the quarter and the full year. And actually for the full year, if we restate 2017 from the capital gain that we made on the sale of a reinsurance activity in Luxembourg, the profit is up 3% 2018 on 2017. So it's clearly going alongside with the evolution of the business.Amundi, I think we can go quite swiftly considering all the details that we were given by even Nicolas yesterday, but you see exactly what I was mentioning. Nice inflows in the first 9 months and in the full year actually, because inflows were above EUR 40 billion for the full year, but EUR 43 billion of negative market effect on the last quarter. In this context, the financial performance of the last quarter was negatively oriented, but with a good monitoring of the cost base, so the performance remains at a high level. And even in this difficult quarter, the cost/income ratio remains in the region of 55% and for the full year, the profit is quite significantly up, contribution of Amundi to the profitability of Crédit Agricole S.A. Retail banking activities in France LCL, activities very -- is very good actually. Loans outstanding continues to be up significantly and as in the previous quarters, these are more driven by corporate and SME loans than individual loans, even though consumer credit and home loans are still positively oriented. Customer savings are also up, a little bit impacted for the off-balance-sheet part by market effect, but still up. And in terms of profitability, what we can see is that the revenues are flattish Q4-on-Q4, but this is due to a very specific point, which is the negative reevaluation of some shares that are held by LCL, namely in 2 entities, Crédit Logement on the one hand and Visa on the other hand. And this is, all in all, generating around EUR 28 million of negative NBI. So besides this effect, the revenues at LCL will have been up for the quarter and up for the full year and actually, they are only flattish. As the cost base continued to decline quite significantly, 2.6%, both for the full year and for the quarter, the cost of risk being also quite stable, volatile at a low level, I would say. We have a net income before tax which is significantly up and a profit which is flattish for the full year and for the quarter, but due to the fact that we have had normalization of the level of taxation, corporate tax for LCL, so if I restate from the revenue effect in connection with this in impairment on Crédit Logement and Visa and with normalized tax rates, we would have been significantly up in terms of profitability.Italy, as we had forecast, since now the beginning of last year, we are now in a situation where costs are trying to show the positive effect of the synergies that we are generating. And thus, we have an evolution of the revenues, which is now above the evolution of the cost base. Of course, these figures are quite significant, because we have the scope effect. In 2017, we didn't have any contribution, neither in the revenues nor in the cost stemming from the 3 banks, but now that we have them, what we see is that we start to generate more revenues than cost additions. And so this is generating a significant growth in the growth of that income. Considering the further decrease in the cost of risk, we have a good evolution of the net income group share of the contribution of Cariparma to the profitability of Crédit Agricole S.A.This is leading us to the overall scope of activities of the group in Italy where, as you know, we are developing all the scope of activities of the group, where we have launched or renewed some significant commercial agreements that are going to produce additional revenues. As of this year 2019, we generated EUR 573 million of net profit last year in Italy. It's up more than 5% as compared to last year, which was already up as compared to the previous year. So clearly, Italy is more and more a key area in terms of profitability for Crédit Agricole S.A.Excluding Italy, retail banking activities abroad are individually small entities, but globally, they now represent close to EUR 150 million of net profit. It's up EUR 50 million -- excuse me, 50%, also EUR 50 million, I would say. And it's benefiting notably from the fact that this year, we haven't had any negative ForEx effect contrary to the previous year. And all these activities continue to operate quite nicely. Specialized financial services. It's been a very good quarter, both for CACF and for CAL&F in terms of commercial activity, and actually it's been also a very good year globally with outstandings quite significantly up, generating a growth in the top line. The cost base continued to be under strict control. The cost of risk, as I already mentioned, is stable, yoyo-ing a little bit around a low level. And so in this context, we generated a significant improvement -- further improvement of the net income group share, both from CACF and from CAL&F. In the Large Customers division, if we take a look only at the bottom line, we have had a very nice year and a very nice quarter indeed, with high level of profitability, quite high level of return on normalized equity. Especially, if we consider that as compared to last year, we no longer have any significant contribution coming from the BSF, which was deconsolidated in the third quarter of 2017. Of course, if we go a little bit up in the P&L, what we would see is that revenues are -- have been dented in the fourth quarter by market condition. It's clearly focused on capital market activities, and it's clearly, as we already said in the past, strictly in connection with customer activity and commercial activity. We have had a quarter where customers were quite shy in term of developing their activities, in terms of requesting our services for the origination of bonds or all other type of capital market activities. And so this has led to a lower level of activity, so a lower level of revenues, but we haven't had any specific difficulty in connection with the volatility of market parameters.In this context, and thanks to a continuous control of the cost, thanks also, obviously, to the very low level of the cost of risk, we managed to compensate, I would say, for this weakness in the top line in capital market activities. And this led to this quite high level of profitability and this quite attractive return on normalized equity for this division. If we go to the Corporate Centre, it's, of course, a little bit volatile quarter after quarter, but we are on a yearly basis, continuing to decrease the cost of the Corporate Centre, and we are heading towards the target of minus EUR 700 million that we have in mind for 2019. We continue to struggle in order to reduce both the financial costs and the operating cost of the Corporate Centre, and again, we are on track.Let me just spend a minute on the Regional Banks. Key, of course, within the group, both from a solvency viewpoint and also from a commercial viewpoint. And I should have said probably -- I should have started with the commercial viewpoint. It's absolutely key for the group globally and for CASA's business lines that the Regional Banks continue to be attractive from a customer viewpoint, and it's clearly been the case last year. And they continue to develop, very actively, their loan book, their customer savings, collections and the sale of additional services and products. And so this is a significant and very important contribution to the profitability of the group. As you know, the Regional Banks are monitoring their businesses more looking at their results in French GAAPs rather than IFRS. So this is why we wanted to indicate their -- the evolution of their P&L under French GAAP. And it was up close to 3% in 2018 as compared to 2017, translated into IFRS and transform into their contribution to the profitability of the group. The situation is a little bit different because of all the anti-group elements that we have to take into account, but nevertheless, it's been a good year also for the Regional Banks as well as LCL globally.Let me go now to the solvency with -- for Crédit Agricole S.A CET1 ratio which stands at 11.5% end of 2018, it's the same level as end of Q3. And actually during this quarter, we have had quite heavy headwinds. It's been the case of the OCI reserve component of the solvency, down 13 bps. It's clearly due to the market condition that we had especially in December. And we also took a hit from, I would say, a regulatory viewpoint with the first layer of surcharge on the operational risk, which is only a step towards what we will have to stand when Basel IV is applicable in 2022.In this context, we managed to monitor quite strongly the organic growth of RWAs. And so this was completely absorbed actually by the results that we managed to keep and the evolution of the organic RWAs, leading to the stability of the CET1 ratio at CASA level.At group level, it's been an increase of 10 bps of the solvency, 15%. We have more or less the same phenomenon then at CASA level with a strong level of returned earnings, but a negative impact both from the OCI reserves and from the regulatory headwinds. A positive impact from the reasonable evolution of RWAs and all in all, this increase of 10 bps of the CET1 ratio.In terms of TLAC, we are now at 21.4%, so we are clearly close now to the 22% target that we had set for 2019 without any eligible senior preferred debt. And in terms of MREL, we are at 12.4% in terms of TLOF, which is one of the different ways of assessing this ratio. Nothing much to say about it.Funding has not been an issue for the group in 2018. The group globally issued a little bit more than EUR 34 billion of debt and CASA itself issued EUR 14 billion of debt. In both cases, we are a little bit ahead of the initial program that we had, which is a situation which we are used to, actually.In terms of liquidity, nothing much to say. We are in a very positive and a strong situation with very high reserves of liquidity. LCR ratio, which is far above any regulatory target, and a surplus of stable funds, which continues to be above EUR 100 billion.So in conclusion, and I will leave you the floor for your questions, I think that we have had healthy results, as Philippe said, healthy, robust and balanced throughout the year, even though the year has been a little bit more bumpy than initially expected. And I think that I can stop here and now go directly to your questions if you have any.
In terms of organization, we could start by local questions if you want.
I have a question on the loan growth in SMEs at LCL. It's been running quite strongly in the last few quarters. If I look back at 10 years ago, there had been obviously very strong growth going into the recession. Should we worry about when we go into late cycle to have an increase in provisioning? And then the second question relates to the corporate and investment banking. So you're still containing the RWA growth in CIB, but there has been a small change, I think, in the methodology, so there is a small optical increase. What's your thinking about how much growth you're happy to have there?
Within LCL, it's a strategic decision to increase the activity of LCL with corporate and SMEs because of the global strategy that we have for LCL, which is to be focused on cities and which is to rely on, I would say, the DNA of LCL. And historically, LCL has always been a corporate and SME bank. What we see in the loans that we originate nowadays is that it's almost exclusively investment loans. So we are not talking about treasury loans that can easily be transferred into bad loans. It's clearly investment loans that are designed to fund and to finance the investment needs of the customers. And so we are not worried by the stronger development of this loan book, and we see no -- and we decided not to have any, I would say, loosening of the credit standout that we have on this category of customers. In CACIB, the idea is to continue to monitor the global RWAs within CACIB at a level which has to be more or less stable. So of course, this is an area in which there can be some volatility because of ForEx effects, because part of the loan book -- significant part of the loan book is not in euros, because of methodology. Because within CACIB, you not only have credit RWA but also operational risks RWAs and market risks RWAs, so you may have different methodology evolutions. What happened in the fourth quarter of this year is, what I said, we took -- actually, we implemented a strengthening of the internal model that we have developed to assess the RWAs linked to operational risks. And it's clear that if we did so, it was at the request of the ECB. That's absolutely clear. And we decided to implement this modification swiftly. First, because we had to do it, but also because it's only a step towards what we will have to support anyway with the full implementation of Basel IV. Because you know that for Basel IV, for operational risks, no internal model would be allowed any longer, and we will have to go back to a standard formula. So anyway, we know that this is going to translate into an increase in the level of RWAs for operational risks. So this is actually what happened in the fourth quarter. But I would say that organically, we continue to stick to the same principle, i.e. primary distribution of a significant part of all the loans that we originate and a rotation of the portfolio in order to be able to continue to be with our clients to finance them without having too strong a growth of the loan book.
Further question?
Thomas Dewasmes from Goldman Sachs. I just wanted first to ask about the French retail -- the French banking market in general. With Crédit Agricole Group now at around 15% to Core Tier 1 ratio, the other big mutual banks also have very high Core Tier 1 ratios and no dividends to pay per se, the pricing remains extremely tight in France. And as a market leader, I just wanted to understand what's your view on the interplay between the appetite to essentially deploy that capital and pricing for the French market, which has been problematic for, say, for example, Caisses Regionales growing loan by 7% but have flattish or barely any growth in net interest income, according to the slides. And secondly, recently, I attended a presentation by D-Rating, a fitting name for a rating agency about tech. But the point is that they show that the Caisses Regionales has an extremely good ranking about their tech. The cost were up 2% this year, and there was a big, big gap with LCL, which was trailing in their ranking. And LCL has been really good on costs recently. So I just wanted to understand whether there is any risk of a catch up in cost going forward? And what was your take on their rating, if any? And my second question was on CIB. You showed a nice slide where you have all these nice returns in all of the businesses which you operate. The one business in the group, if you go down one level as opposed to big aggregate, the market business where it's the second year where it's kind of a mid-single-digit return. And I just wanted to know whether other businesses were lurking in those risk-weighted assets and might want you to redistribute them somewhere else for a more attractive returns prospect going forward?
Many questions, but interesting questions. So I'll try to answer swiftly. First on French retail globally. Our assessment, we already stated several quarters ago, but I think we are there. It's that we have reached the bottom and that going forward, we are going to see stability and progressively some increase in the top line. Actually what is happening now is that the volume effect, at least, the rate contact, continues to be what we forecast. Of course, if there is a further deterioration than it might be different. But the volume effect, plus the evolution of fees, which is positive are now offsetting the further compression of the margin, which continue to happen actually. We continue to have new loans that we book at a rate which is a little bit, but slightly only, below the rate of the back book -- the average rate of the back book. But we used to have a difference between both, which was in excess of 100 bps a few quarters ago, it's now probably around 30 bps to 40 bps. So it's much more tiny, and it's -- the gap is filling quite rapidly. So we clearly are of the opinion that there is now a stabilization actually of the revenues globally in retail banking activities in France. When it comes to digital elements and things like that, you are mentioning the D-Rating rankings. I think that any bank can find at least one classification in which it would be in a good position, because you have as many classification as you want in order to try to find one at least that will suit you. What is for sure is that we have -- and I don't remember which is the organization that publishes it, but we have an organization which is dedicated also to that kind of classification that published for 2 years in a row a rating in which the app of LCL was the best app in the French market, so second year in a row. So I think the endgame is, are you attractive from a customer viewpoint or not. And in 2018, the regional banks of Crédit Agricole attracted new customers, gross numbers, net number. LCL attracted new customers, gross number, net number. So at the end of the day, I think that as long as we continue to have customers, as long as we continue to have and possibly to grow our market shares in the different products, the question of are we the best banking this or that area is a relative question, I would say.
[indiscernible]
Yes, sure.
This is such a good question, too, and we'd like to highlight the fact that it could be a mistake to ration all retail banking as a stand-alone activity. For some competitors, this is the case, of course, if you aren't growing that. And with plenty of Crédit Agricole Group, this is exactly the root of universal bank. That means that retail banking also fuels many other business lines of the whole group. So you have to look at the global placement, both in terms of net income, of customer acquisition. And what we can say that is that even without this rationale, when you just look at the return on normalized equity, you can see that for LCL, the return on normalized equity is 11%. With very low environment of interest rates, that's really not so bad, really not so bad. But this is possible if you are included, if you are linked in a global model of the relationship. That's exactly what I tried to explain at the very beginning of this meeting. But this is very important to see the global performance without the mistake to think that each entity is able to get this performance if it is stand-alone.
And actually, I was -- hoped to say exactly the same thing about capital market activities. Because if you try to assess the profitability of a specific activity without putting this activity back in the scope of all what we propose to our customers, you'll miss something. And as far as large corporates and financial institutions are concerned, the issue for us is to be able to have a scope of an offer of product which is wide enough in order to attract these customers and to generate enough profitability from a customer viewpoint, not necessarily from a product viewpoint. So this is why we start by assessing the profitability of the Large Customers division, because this makes sense globally. And the profitability of the Large Customers division actually is indeed high, is indeed very positive, has improved quite significantly in the last 3 years. And the fact that in a specific year and especially in a specific quarter, we have had some harder times on a specific set of activities is not leading us to the conclusion that we have to get rid of these activities, because they really fit in the business model that we want to deploy and in the product offer that we need to offer to our customers, actually. So capital market activities have had a poor level of revenues in the fourth quarter, that's for sure. We are going to continue to struggle in order, if possible, to adapt the cost base in order to be able to withhold that kind of environment, of course. But this is absolutely not lead us to the idea that we must get rid of certain sub activities of the capital market division.
Jon Pease from Crédit Suisse. Two questions, please. Firstly on the insurance business, very strong revenues this quarter. I think your policyholder participation reserves came down a little bit from Q3, and I just wondered to what extent that it contributed to the top line. And how you saw those reserves developing going forward. And then my second question is on the capital and the sort of forward-looking bridge. To what extent do you see any other regulatory headwinds? And can you remind us of the OCI contribution, which is left? And as we look on also to 2022, any thoughts around Basel IV? What will be left of Basel IV by then?
Well, the insurance division has had a good quarter. This is one of the qualities of the insurance division. It's very stable actually even though we have difficult times on the market, which has been indeed the case. So of course, this translated into this OCI reserve reduction. By incident, I'd just give you the figures that you were requesting. We have, I think, around 30 bps left of OCI reserves within our capital. And so this difficult market conditions translated into decreasing the OCI reserves. It didn't translate through a deterioration of the profitability of the insurance activities. You were questioning the evolution of the profit-sharing rate with the policyholders. Actually, in the fourth quarter, we -- as we do every year, we fine-tune the breakdown within all the financial revenues of the life insurance activities between the policyholders and the shareholder. And then within what is attributed to the policyholder, we make a second split, which is between what we are going to pay right away and what we are going to keep aside for the future. And in the fourth quarter, I'm not going to be too precise, but what we did is that we reduced a little bit within what is allocated to the policyholders. We reduced a little bit what we put aside for the full year for the future, and we increased a little bit slightly what we had decided to pay for the year 2018 to the policyholders. And so this didn't lead to any modification of the first split between the shareholder and the policyholders. And then in terms of capital. So OCI reserves is no longer a significant component of our solvency. Maybe -- I just wanted to remind -- I don't want to frighten you, but OCI reserves can be negative, too. It's not a matter of seeing the OCI reserves going down to 0. This is what is going to happen with a certain category of OCI reserve, which is the unrealized capital gain that we have on the fixed income book of the insurance activities, because this book is going to be carried up to its end. But as far as the bond book of the bank is concerned, we can have positives or negative levels of OCI reserves. We can decide to crystalize either a positive or a negative situation. So it's a matter of volatility within the solvency. It's not just an element that you want to see declining down to 0 and then it's over. It's just an element of volatility that we have to manage. But more globally, do we see additional headwinds before Basel IV? Yes, some, and it's going to start as soon as January 1 this year with the translation to IFRS 16. Because you liked IFRS 9., you now have to like IFRS 16. So IFRS 16, as you know, is this new standard in which you have to identify on the asset side of your balance sheet the value of your rents, and on the liability side, the value of your commitment to pay the rent. So it's increasing the same size a little bit the balance sheet of the bank. It's not massive, but for Caisse, it's going to lead to an increase of around EUR 2 billion of RWAs. So it's not nothing. And I made a funny exercise, funny is not really the right word. In 2018, we had to absorb in the solvency of Crédit Agricole S.A. 42 bps of different type of headwinds, 42 bps. I'm not taking into account the evolution of the OCI reserves. I'm just talking about IFRS 9. Then the deduction of the commitments to pay to the Single Resolution Fund and the Deposit Guarantee Fund in France, plus the strengthening of the internal model on operational risk, plus TRIM, 3 bps. So all in all, 46 bps for Crédit Agricole S.A. And the same elements at the level of the group, 62 bps of solvency. So it means that if you assess the evolution of the solvency of Crédit Agricole S.A., which in 2018 went down from 11.7% to 11.5%., it's after having absorbed 42 -- the 46 bps, excuse me, from different categories of headwinds on which we have absolutely no influence. And at the level of the group globally, where the CET1 ratio was up only 10 bps between end of '17 and end of '19, it's after having absorbed the 62 bps of different headwinds. So it means that we have the capacity of absorbing quite significant headwinds. But of course, this is a little bit capping our capacity to continue to build up the level of capital. So going forward, what we have identified for 2019, it's IFRS 16. This is for sure, and it's not massive. Again, it's around EUR 2 billion for CASA and EUR 3 billion for the group globally. But again, it's EUR 2 billion and EUR 3 billion of RWAs. We will still have probably some TRIM exercises that are going to continue, but you see that the last one was only 3 bps. So it's not absolutely massive. And then there is Basel IV. And for the time being, I'm not able to give you relevant figures on Basel IV, because we still don't have any text coming from the European Commission. And so in these matters, the devil lies in details, and we haven't had the opportunity to see the details.
So next question.
Angeliki from Autonomous. One question on TRIM. If you could give us some detail on which part of the book exactly you booked those 3 bps? And can you confirm the guidance that you had given last year around 30 basis points overall impact from TRIM? And secondly on cost of risk, you had some reversals in the stage 1 and 2 buckets. Should we expect this to continue in 2019? And what is the outlook overall for cost of risk this year?
I don't have my crystal ball. No, the TRIM impact that we had last year, the 3 bps TRIM impact, came from LCL and from the fine-tuning of an interim model on the, I think, the corporate and SME lending at LCL. So it's this one. What we said, the 30 bps that you are mentioning is what is left from the global 70 bps evaluation that we had when we published the Medium-Term Plan in 2016. So I continue to think and to estimate that we have the capacity to absorb these additional 30 bps up to the end of '19, which was initially the capital planning that we published. I am absolutely not confirming that all the TRIM exercises are going to lead to a 30 bps impact for this year, simply because we don't know when the reports are going to be published. We don't know the magnitude of the request of the ECB. So it was a pure evaluation. Up to now, we have been comfortably inside this evaluation. So -- and I don't have any clue leading to the idea that we should modify significantly that. But clearly, what we are going to do is that we are going to update completely the capital planning when we publish the new Medium-Term Plan. Cost of risk and Bucket 1 and 2, I think that clearly, everybody knows that IFRS 9 is going to be procyclical. And so IFRS 9 is leading to Bucket 1 and Bucket 2 provision reversal when the overall environment is positive. And if we are slowly, I would say, upticking the global scenario that is leading to the global, I would say, evaluation of the Bucket 1 and Bucket 2 provision. And if at a certain point in time, we have a darker view of the environment, this is going to lead to an impact on the Bucket 1 and Bucket 2 provisioning, that's for sure. But for the time being, we haven't significantly modified our forecast in terms of the global macro environment.
Yes. For next question, please?
Kiri Vijayarajah from HSBC. Can I ask about Italy and the fact that it's in kind of technical recession? Does that have any kind of impact on your ability to or desire to put more capital to work in Italy, both organically and, I guess more interestingly, through continuing with bolt-on acquisitions? And the second question on the TLTRO. Kind of what's your kind of base case thinking there? And again, with regards to Italy, does it alter in any way your desire to grow the loan book there?
Well, the situation in Italy is a little bit contrasted, because it's clear that they have been and they are in a technical recession, as you mentioned. But at the same time, what I noted is that I think it was last week, the Italian government issued a 30-year bond. They wanted to raise EUR 8 billion, and I think the order book was EUR 42 billion, if I remember correctly. And I think that around 3/4 of the order book was made of non-Italian investors. So it clearly means that a lot of investors have positive view on the Italian situation. Nevertheless, as far as Italy is concerned, we see this country as a second domestic market. It's a very common expression. But for us, it means really a domestic market where we are active since more than 30 years. And so we are not going to modify our footprint in Italy because there is a positive or a negative news flows. So we are here to stay. Of course, we manage our Italian operation in a prudent way as the -- we manage all our operations actually. And of course, our teams in Italy monitor their activities, monitor their loan books cautiously and especially cautiously when the environment is a little bit harder, but really nothing that is going to lead us to decide to modify the capital allocated to this country and to these activities. You're talking about acquisitions or further growth, organic growth, that's for sure. We are here to grow as in every country where we are active. When it comes to acquisition, we have been in the past quite, I would say, cautious about acquisitions. And the 3 banks that we acquired in 2017, they were acquired in a very specific situation where their balance sheet was completely cleaned up and where they had only a problem of operational efficiency. And this is the type of operation that we had considered in the past, and we will not, I would say, go beyond that type of potential target. But for the time being, we are not looking at anything in Italy, and we are focused on the integration of the 3 banks that we acquired. TLTRO, it's true that it's going -- it's coming to an end. It has to be repaid in between June '20 and March '21. We are perfectly conscious of that and, actually, we've been probably among the first to say that this was going to be an issue. So as far as we are concerned, we monitor our TLTRO drawings in a very prudent matter, and actually we have already started to earlier repay some of it in order not to have too significant liquidity cliff in '20 and '21. We think that probably the ECB will have to replace it by some other type of facility, because it's going to be difficult for the ECB to accept, to see a EUR 750 billion of funding provided to banks disappearing without anything else to replace it. But we are ready to replace all the TLTRO funding that we have in our balance sheet by market funding.
One more question and then we shall take questions by phone, if you want.
Jacques-Henri from Kepler Cheuvreux. Just 2 questions. The first one, when I look at your quarterly net interest income at LCL -- it's a positive question of LCL so -- for once. If I restate from the Crédit Logement write-off, it looks like the net interest income is EUR 460 million stable-ish over the last 3 quarters. Is it fair to assume that will be the same amount in 2019? And since the commissions are actually behaving quite nicely, could you have revenue growth at LCL in 2019? That's the first question. And the second one is a question on the Medium-Term Plan, very simple question. What is going to be the first year of execution, 2019 or 2020?
Well, I'll leave you with the precise calculation on the net interest margin on LCL. But clearly, we are working to increase the top line at LCL, that's for sure. So we don't know exactly when it's going to be significant enough to open champagne bottles, but clearly, we are working to increase the top line and not only to decrease the cost line, that's for sure. For the Medium-Term Plan, I think the question is not to know what will be the first year of the Medium Term Plan. What we are going to set is new targets for 2022.
Should we take -- can we take question by phone, if possible?
[Operator Instructions] Your first question comes from Bruce Hamilton of Morgan Stanley.
Two, really. Firstly, just on Italy again. Actually, top line developments in Cariparma in Q4 looked pretty encouraging. Was there any sort of one-off elements within there? And as you cast out to '19, do expect you can actually see growth given the difficult backdrop? Or would that be a bit too much of a challenge? And then secondly, in terms of the provisioning outlook, I'm just interested in what sort of macro assumptions you've embedded in your current forecast, GDP and other, just to get a sense of how conservative you're being?
Well, in Italy, it's clear that the dynamic of the top line in 2018 was significantly the result of the scope effect, because the reference period in 2017 was without the 3 banks. And so the figures of '18 were peculiarly above the figures of '17. But what we think -- and actually, it has started to work in the network of the 3 regional banks that we bought, what we think possible is to increase the sales on the customer base of those banks, because we are offering a wider range of product than the one they were offering to their customers before the acquisition. Because we have some expertise and skills in terms of commercial, I would say, commercial management that they didn't have in before. So the idea is clearly to grow their top line on a "stand-alone basis" as compared to what it was when we bought them. And at the same time, of course, we are targeting a decrease of their cost basis, which is going to accelerate the jaw effect that we have started to see in Q4. But clearly, we are going to be more focused on the jaw effect rather than seeing either an increase in the top line or a further decrease in the cost line. Clearly, what we targeting in Italy is to see an improvement of this jaw effect that we started to have in the fourth quarter. In terms of economic forecast, what we are -- what we have in mind is, I would say, more or less a plateau in 2019 as compared to 2018. In France, clearly, there has been a slowdown end of 2018. But the latest forecast of the Banque de France is an acceleration in Q1 and Q2 '19. And indeed, the different measures that have been taken by the government in December are going to boost the purchasing power of the consumers in France. In Germany, it's clear that the different confidence polls are heading a little bit down lately, but we continue to see an element of, I would say, conjunctural element in this slowdown and the capacity of the German industry to accelerate again in the course of 2019. So no recession. I would say, more or less a plateau in Europe.
I would add on. In Italy, at this point, when you look out on the long term, you can see that there was no correlation between our net income reserves and the growth in Italy. We had recession in Italy several years ago. We are not negative results for Crédit Agricole. The explanation is very simple. Our setup started more than 30 years ago, especially north of Italy. And since this time, we just give the priority to organic growth and then to additional setup by gradually acquisition, very small acquisitions, never rupturing the model. Thanks to that, we succeeded to close many situations, positive or negative situations. And simply, when you look at the last 3 years, you can report that, for the whole group, our net income group share for Crédit Agricole Italy is above EUR 0.5 billion each year, and it is improving. 2018 was above 2017. 2017 was above 2016 as well. So of course, forecast about growth is important, but in this kind of strategy, when you are not too big, when you are focused on north of Italy with a very special kind of organization, linking all the different business lines around our retail banking that is Cariparma, Crédit Agricole Italy, you can cause a situation with positive results and even reducing the level of risk, though the environment is not as good as we currently saw. This is really an ongoing process, and as we said 2 years ago, 3 years ago, 4 years ago, we repeated this year to once again that this strategy will go on. We don't contemplate anything that could create a rupture in our organization. And so simply, I'm as optimistic for next year that -- than I was for last year. Next question in the room. A question in the room. We shall come back to phone later.
Delphine from JPMorgan. Just 3 quick questions from my side. First of all, just to come back on French retail, just wanted to check that, I mean in terms of the revenues, are you seeing any headwinds from the measures which have been announced by Macron at the end of the year? And does that kind of distort little bit your comment about revenue growth -- well, stabilization of revenue growth in 2019? The second question is on Corporate Centre. I mean it's just been a little bit volatile, I think, in 2018 in terms of the revenue line, which has been very good, very -- I mean the losses have declined quite a bit, but the cost line has increased. I mean, obviously, you're close to your EUR 700 million, but just wanted to check there is nothing you want to highlight maybe on just the Corporate Centre for this year. And then the last question is on capital. Some of your peers have slightly kind of, not increased their targets, but are seem to be aiming for a little bit of a buffer above the 12%. So just wanted to think from your side, given the regulatory headwind which are still uncertain, are you -- would you consider revising a little bit your sort of 11% floor? Or if at this point, there is no change?
Thank you let's start with French retail. Obviously, the different decisions that were announced by banks in December are going to have a slight impact on the top line of French retail banks going forward in 2019. It's not going to be massive, to be frank. We're talking about 2 different things. The first one is that we agreed to freeze for 2019, the, I would say, the price grids of all the services that we sell to our customers. So there is nothing more to say. It means that we are going to sell the products at the same prices as the one we had in 2018. But clearly, what we are targeting is not to generate revenues through a permanent increase in our pricing. We prefer to improve, I would say, the mix of the products that we sell. And there is an easy example to take which is the improvement or the increase in the breakdown of the payment cards that we sell. There is a permanent increase in the high-end category of the payment cards that we sell. So it means that without increasing the price of each card, if we sell more high-end cards than low-end cards...
We do.
And we do, actually, we do. We did it within the Regional Banks, and we did it within LCL last year. We are going to increase our revenues globally, even though the tariffs, the prices are fixed. Then the second element is a ceiling that all banks agreed to put on the level of commissions that they can take for payment incidents in -- on their fragile customers and the ceiling is set at EUR 25 a month. As Philippe says regularly, it's a very, I would say, reasonable decision that we took together. It wouldn't have been possible for a single bank to take that decision, because obviously, then all the fragile customers will have concentrated on this bank. But as long as all banks are taking the same commitment together, then each bank is going more or less to keep its fragile customers, the one it had initially. And we are not going to generate additional revenues on these customers. But generally, when a customer is fragile, you may charge high fees, but it translates into high provisions, because generally, those fees are not paid. So the impact may be material on the top line, but probably not on the bottom line. So all in all, we were volunteered to take those measures, because we thought it was a key element of the smoothing of the global situation. And we don't see it as a threat on our capacity to evolve positively next year. On the Corporate Centre, there's one point which is explaining the situation you're describing, an increase higher than we expected on the revenue side -- or an improvement on the revenue side and an increase on the cost base. In the Corporate Centre, we have several entities that are not profit centers, that are service centers, dedicated to serve all the entities of the group. So we have, in the Corporate Centre, both the operating costs of those entities. And then the revenues coming from the billing that we do to all the subsidiaries of the group, all the Regional Banks. And so this is mainly the case for IT services and for payment services. So this may lead and indeed, clearly, in 2018, we accelerated the investments, so it led to an increase of the cost base of those entities. And at the same time, we are billing all the users of those services, be it the Regional Banks and be it the subsidiaries of Crédit Agricole S.A. And so this generates revenues for the Corporate Centre. So it's a technical effect. It's not changing the bottom line, but it's leading to this effect that you are mentioning. And on capital, excuse me, we have no intention to change our target and the target is to remain above but as close as possible to 11% at the level of Crédit Agricole S.A. And it's to continue to build up the capital at group level, because as you know, considering the distribution rate at group level, we are going to continue to build up the level of capital. Next question?
[ Matthew Clark ] at Mediobanca here. So to come back to an earlier question on the insurance revenues and the policyholder reserves, I didn't quite understand the answer. So if you had not made the adjustment to the policyholder reserves in the fourth quarter, would the insurance revenues have been lower, as they're presented in IFRS accounts? So I just want to try and understand the interplay there between the reserving and at the revenues as we see it. Second question is on the low tax rate in the fourth quarter. Did you generate any deferred tax assets there? I'm just wondering whether this is purely catch-up on a full year basis or whether there was anything else going on there in the fourth quarter. And then finally on the EUR 75 million litigation provision in the Corporate Centre, which I think was for a specific case, could you comment on whether that's something where you have visibility on the ultimate cost? Or is that a provision that could see further adjustment as whatever process evolves?
Let me start with the last one. To be frank, up to now this year, we haven't booked any general legal provision. When in 2017, we had booked a little bit more than EUR 100 million of not -- unaffected general legal provision. So we decided considering the good level of profitability that we generated in Q4, we were quite -- it would be quite sensible to complement our general provisions, but there is nothing specific. And so there is not the possibility of saying that we would need to complement that further or not. So it's, I would say, more a prudent approach of this -- the different type of issues that we can have. On the tax rate, corporate tax rate, it's true that we had a low corporate tax rate, upper and lower corporate tax rate in Q4. Actually, clearly, I have always say that it's maybe because I'm not a tax expert, but it's already hard to understand the level of taxation on a yearly basis. But clearly, on a quarterly basis, it's very, very difficult. So clearly, you're right, it's a catch-up at the end of the year of the full year rate. And probably, we fine-tune some assessments of the level of taxation that we did in the first 3 quarters of the year with this level in the fourth quarter. Insurance, it's a little bit tricky actually, and I don't want to spend too much time on this issue, but we have 3 level of decisions to make when it comes to the management of the financial revenues in life insurance activities. The basis is the level of financial revenues generated by the portfolio of assets. And this is decreasing slightly, because obviously, considering the component of fixed income assets in this portfolio, it's slightly decreasing. And last year, actually, its yield was in a range around 2.7%. The first decision we have to make is at the split, what we call the setting of the financial margin. So it's the decision to -- it's the decision of what proportion of the revenues we are going to attribute to the policyholders and what proportion of the revenues we are going to attribute to the policyholders in order to cover the costs and the cost of capital. Actually it started by the very first decision -- excuse me, the first decision is the level of revenues that you want to materialize, because you have within your portfolio, you have unrealized capital gains and you may decide to realize or not realize them, and it's a permanent fine-tuning. Of course, we have to take into consideration market considerations, but -- or market prospects, but we have also to try to manage the level of revenues that you book quarter-after-quarter. First decision to find setting of the level of revenues that you are going to book through capital gains that you want to materialize or not. Second decision, the share between the shareholder and the policyholders. And the third decision, within what is allocated to the policyholders, what is attributed immediately and what is kept for the future.
We can come back to questions on phone, I think.
Your next question comes from the line of Flora Benhakoun of Deutsche Bank.
I have 2 questions as well, please. The first one is, I'd like to go back to the move you had on the operational risk, RWA, this quarter. So the first thing I'd like to understand is whether you did that at the request of the regulator? And the second thing is to what level of standard use in the calculation of the op risk, RWA, you had to go? The second question is regarding the FICC business. I mean obviously, the revenues have been down significantly this year. Clearly part of this is cyclical, but part of this is structural. When we look at other banks, some of them are rethinking their FICC operations in order to improve the return on equity in their investment bank. So is it something that you're also considering? And how would you see your position in the FICC business?
Thank you. Let me be very precise on the operational risks. It's clearly after a mission of the ECB that had challenged our internal model that we had to strengthen a little bit some parameters of the internal model that we use to assess the operational risk capital requirements. And so we strengthen a little bit the model, that this has nothing to do with translating certain activities from internal model to standard formula actually. We have certain part of the group in which we use the standard formula. Most of the group is under the internal model, an AMEA model. And so we had to strengthen a little bit our model, and this strengthening translated into an increase in the level of RWAs for CASA and for the group globally. And within CASA, it was massively allocated to the CIB. Some other activities had also some slight increases in their capital requirement for operational risks, but the biggest chunk of it was allocated to the CIB. Coming to FICC, again, we are happy with the set of activities that we have in the capital market space. We have -- we don't have any, I would say, exotic trading, truck trading activities. We have only customer-oriented activities, which are consistent with our business model. We are active in securitization and loan origination, which is clearly in the continuation of the financing part of the CIB. We have rate hedging activities. We have ForEx activities, which are also in the continuity of bond issuance or securitization. And this is a set of activities that we are happy with. Of course, we are going to continue to struggle in order to reduce the cost base of these activities or to improve the cost/income ratio, and in order to be able to accommodate more easily some periods where revenues are harder to find. But we are not reshaping. We are not going to reshape our capital markets or FICC activities, again because we have the activities that we want to have.
Just I would like to highlight this point, especially as the Chairman of Crédit Agricole CIB. I think it's important to explain that when you look at the profitability of Crédit Agricole CIB and according to me, the profitability as a sense on the year level, it's very difficult to comment that for each quarter. When you look at that for Crédit Agricole CIB, our return on normalized equity for Credit Agricole CIB is above 10% for several years very regularly. And as Jérôme explained, we have no reshaping to do about that. I mean when the quarter -- when within the quarter market activities are not there, are low, revenues and net income are low. When they will be higher, our revenue and net income will be higher, simply. I think it could start the kind of confusion with some competitors or peers we have to face with losses on markets. This is not our case. Simply, when you have a very low profile of risk, of course while the activity is low, revenue are low; while the activity is high, revenues are high. So it's very important to -- not to reexplain but to highlight this fact, the model of our CIB activities is really the good one for Crédit Agricole and for timing, and for many years, at the end of the day, the return on normalized equity is above 10%. It's really a good performance. Really, it's really a good performance. And I'm sure that after this current quarter, the obvious question would be usually different than the question about the fourth quarter of 2018. Thank you. Next question?
The next question comes from the line of Pierre Chedeville of CIC Market Solutions.
A few questions from my side. First question is regarding your CIB business throughout your customer. I wanted to know where you are regarding transaction banking activities. I mean debt finance, cash management, because we can see that most of your peers in Europe are emphasizing on this area of the business, as it seems to be key now in the current environment to conquer new clients. And in my view, you are not very vocal regarding this aspect of the customer banking in the CIB. Could you tell us a word regarding your transaction banking franchise? And my second question is regarding your activity towards SMEs and intermediary companies, because you have a strong market share here. And one of your peers, SocGen to be precise, told us that it was contemplating the idea of securitize some loans from these types of customer in order to optimize its risk-weighted asset management. Is it something that you could also think about? Or do you think that it's not a good idea? And my last question would be about your global cost/income ratio. As you said, you have reached all your targets, except the target of the cost/income ratio below 60%. Do you think that this is an achievable target in 2019, the last year of your Medium-Term Plan?
Thank you, Pierre. Starting with transaction banking activities. Clearly, we are acting and we see also these businesses are key for our further development. We have been probably less vocal.
We should be more vocal.
But -- yes, we should be more vocal, but maybe we shouldn't stop acting at the same time. No, to be more serious, I think it's a key area, and we are going to give some color on that during the Investor Day in June. But it's something natural. Everybody looks at the market the same way, and we are talking about the same market. Clearly, transaction banking services are key in order to improve the stickiness of the customers and the loyalty of the customers across different geographies. So it's absolutely [ decisive ]. Securitization of SME lending. What is for sure is that going forward, we will have to accelerate further our capacity to distribute a growing part of the loans that we originate, if we want to weather an environment where liquidity may be a little bit more scarce than what it has been under the quantitative easing regime. So I'm not announcing anything precise on that, but it's key that we are going to work on this issue too. Cost/income ratio, clearly we are not at the 60% level we are targeting for 2019. So we are not there yet, and we continue to target this level as being a good level. I think the explanation is quite clear. We evolved in a less positive rate environment that dented significantly the revenues of several business lines in the last 2 to 3 years. And clearly, the cost/income ratio, as its name indicates, it's the result of the income and the cost. So we've managed quite, I think, strongly the cost. We lacked a little bit some revenues in some business lines in order to reach the targeted -- initially targeted cost/income ratio. We continue to target it. And when we see different competitors on the French market, I think that the 62% level that we reached is already quite significantly better than most of our competitors.
Next question. No more questions?
Yes, one question. One. One in the room.
Azzurra Guelfi, Citigroup. Two question on capital. One is on credit risk-weighted asset. If we look at the quarter, you had loan growth, but credit risk-weighted asset went down. Can you explain me why? And the second one is, maybe I have to wait till 6th of June, but I'll ask it anyway. How do you think about Switch 2?
Well, for the second question, maybe you'll have to wait a little bit. No, but to be frank, you have seen what we did from a capital viewpoint last year. We generated a significant level of profitability. We accommodated our organic growth. We financed some tiny acquisitions here and there, but we had also to face some significant regulatory headwinds. And of course, until we think the situation from a regulatory viewpoint is completely settled and stabilized, it's very difficult to make a decision on something which represent 120 bps of capital. On the first part of your question, excuse me, risk-weighted assets. Yes, well, we continue to work hard in order to, I would say, optimize the risk-weighted asset density of our loan book. And in the last quarter especially, we managed to transfer to our internal model, the IRB model, I think loan book in Italy, probably the loan book coming from the 3 Regional Banks, if I remember correctly. So this explains why we could accommodate the increase in the loan book with maintaining flat the RWA credit risk. Is there a last question? On phone?
Your last question comes from the line of Omar Fall of Barclays.
Just going back to capital. So you've ended the year on 11.5%, so 50 basis points higher than the medium-term target. Yet because of these regulatory impacts you had, you decided to forego risk-weighted asset growth and I guess, revenues so as to protect the CET1, instead of just letting it drift down towards the target. So is the target really a fairly meaningless number in terms of what you're actually managing the business to? And then the second question, a very boring one, can you just update us on the amount of both synergies and integration costs for the acquired -- the 3 Italian banks? If you have absolute numbers and the timing, that would be great.
I will start with your second question and probably you'll be a little bit disappointed, but actually these 3 banks no longer exist. They have been completely merged into Cariparma. So we don't have the capacity to really track what their cost basis has become, and so it's difficult to -- and we didn't want, to be frank, to invest too much in a audit trail to track those numbers. So clearly we are now sticking to a very simple metric, which is the relative growth of the top line and the cost line within Cariparma, and we want to go back to where the cost/income ratio of Cariparma was before the acquisition. This is the metric that we are going to follow. And so the first steps made in Q4 this year was to be in the situation where we managed to have a positive gap between the growth of the top line and the growth of the bottom line. On capital, 11% is the real target, and we have no, I would say, hidden management buffer at, for example, 50 bps above 11% in order to be fully comfortable. And if, at a certain point in time, because of either regulatory reasons are organic growth reasons or acquisitions or whatever, we are at 11.0%, it's not going to be an issue for us. It's very clear. So it happens that for the time being, and we have always stated that we didn't want to take, I would say, drastic decisions on the structure of the capital before we see the end of the Medium-Term Plan and before we see the regulatory landscape stabilizing. But this doesn't mean that we have an additional management buffer above the 11% target. This is the real target, which -- and we don't need to have anything else above that. Any more questions?
Perhaps to thank you, I would like to add one thing about the substance and the content of the next Medium-Term Plan. But simply to give you some color about the feel of the field of the future Medium-Term Plan. Because the question is, how can we amplify all the successes, the results we get through the current plan? How can we amplify without changing all the decisions of the policy we decided about prudence, about goodwill level and so on. The idea is very simple and I shall start -- I shall end on this point. When you look at the current plan, what we succeeded to add is a higher level of consistency at the group level to create synergies. And synergy is not a default cost, but for revenues too. And one of the example is that at the first day of January, we created a new company together all the infrastructure of IT of Crédit Agricole. This is one of the decision of the current plan to take the benefits of a higher level of consistencies at the group level in terms of synergy.I think that for the new Medium-Term Plan, we can amplify this way trying to reach a higher level of consistency, this time to get a higher level of attractiveness in terms of attractiveness for customer. And to do that, we should focus on 3 topics -- main topics. Of course, the customer project; but on the societal footprint, too; and then on the human project. Just a word on this point. On the customer project, it's obvious that for the latters, the main process was a kind of finalization, that means normalization in banks. You never asked us what the main difference between you and competitors, I mean excepting financial results.I think that as we lived for many years, a kind of globalization of the world, and now we're kind of de-globalization. We shall live between banks after the normalization period, a kind of re-differentiation in terms of approaches, in terms of difference for attractiveness.And we can create that, but of course, we can't do that if we don't do this mistake to consider that we are just a conglomerate, adding different business lines. But together, we can create different approaches of customer compared to other competitors.So the customer project will be probably a point on which we shall be able to create really difference, not simply in terms of communication and measure it really on the business itself.The societal footprint, you are all aware that now just -- it is just not a question of communication, but new spring of profitable business will be anything useful for the environment on a larger comprehension of this term.So we shall focus all the efforts of our entities to create a new kind of business about that and to create, once again a kind of a re-differentiation compared to other competitors. And at least for the human project, the rationale is very simple. You can read that in the current plan. Of course, the society is more and more digitalized. That means that it is more and more processed. That process are the main driver of many things. In this environment, human resources won't be simply the small part not still digitalized, but the part on which you can provide to your customer the good part of responsibility.I mean that the more the society will be digitalized, the more the behavior of human resources in terms of ability to appreciate situation and to decide the situation will be something really creating differentiation.So I can't tell you anything precise about these topics. I can't give you any figure, of course, for the next Medium-Term Plan. But I wanted to simply to tell you that there is really room to emphasize what we did on this program, Medium-Term Plan, something going further so that a higher level of consistency for the group level could create, for this time, a real re-differentiation, not only of Crédit Agricole, not only of Pacifica, not only of Caisse, but of Crédit Agricole group both for the customer project, for the external footprint and for the real culture of managing HR for differentiation to world's customer in a world that will be more and more digitalized.So I hope that with this very short comment, you will be happy to come to our Investor Day, and I hope to see you soon. Thank you so much.
Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.