Credit Agricole SA
PAR:ACA
Earnings Call Analysis
Q4-2023 Analysis
Credit Agricole SA
Credit Agricole S.A. reported a record level of net profit for the year 2023, marking consecutive growth on top of the previous record year set in 2022. Highlighting this performance, the bank plans to propose a significant 24% increase in dividends to EUR 1.05 per share, not including the portion linked to 2019.
The growth was broad-based with key divisions—asset gathering, large customers, specialized financial services, and retail banking—all contributing to the EUR 1 billion improvement in stated net profit and EUR 600 million on an underlying basis. This upswing resulted almost exclusively from operational income growth, while other factors, such as higher taxes, had negligible or negative contributions.
Credit Agricole enjoyed revenue uplifts, up 12% on a stated and 9.5% on an underlying basis for the full year. The cost base rose by 8.9%, reflecting successful cost control. The bank achieved a 'positive jaws effect,' where the growth rate in revenues surpassed that of costs, further improving the cost-income ratio overall.
The group saw a minor uptick in cost of risk by 9% for Credit Agricole S.A. and 6% for the group, despite increased loan outstandings. This indicates stable credit quality, with notably low risk in the financing activities of CACIB and conservative risk levels in consumer finance and regional banking operations.
The group reported stable Common Equity Tier 1 (CET1) ratios, with Credit Agricole S.A. maintaining a comfortable level well above the target of 11%. Customer deposits grew by close to 3% over the quarter, topping EUR 1,100 billion. Their liquidity stance remained robust with liquidity reserves nearing EUR 450 billion, thus maintaining high Liquidity Coverage Ratio (LCR) indicators.
Extended efforts were made in developing new business areas with Credit Agricole Transitions & Energies and Credit Agricole Sante & Territoires, enhancing customer satisfaction and digital services, which resulted in capturing nearly 600,000 new customers since the start of their medium-term plan.
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Good afternoon, this is the conference operator. Welcome, and thank you for joining the Credit Agricole Fourth Quarter and Full Year 2023 Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Jérôme Grivet, Deputy Chief Executive Officer of Credit Agricole S.A. in charge of Steering and Control. Please go ahead, sir.
Good afternoon. Thank you very much. Thanks for attending this conference. I want to start directly on the presentation on Page 4, if you want. And the first message I want to insist on is the fact that we are posting very good results for this year 2023. And indeed, we are posting for Credit Agricole S.A., a record level of net profit. This is leading us to propose to the General Assembly meeting a dividend for 2023 at EUR 1.05 per share, which would be up 24% as compared to the 2022 dividend, excluding, of course, the part of this dividend that was linked to 2019.
The fourth quarter of the year was marked in the insurance activities by weather-related claims, but nevertheless, it was a good quarter with revenues, excluding insurance revenues up more than 9% and recurring cost base, which is completely under control with an increase of 3.7% and a cost of risk, which continues to be in line with what we've posted in the previous quarters. Last point on this page, let me remind you that we've been organizing a dedicated workshop on climate strategy end of last year and we continue to be dedicated to improve our policy regarding climate change and to deploy all the trajectories that we've published on different sectors.
If I go now to Page 5 with the P&L of Credit Agricole S.A. to start with, what you can see is that for the full year, the net profit is at EUR 5.9 billion on an underlying basis, it's up 11% as compared to 2022. And for the full year, it is EUR 6.3 billion, up close to 20% as compared to the stated net profit for 2022. Revenues are up 9.5% for the full year. Cost base is increasing by 8.9%. So we have a positive jaws for this full year. And thus, we improve further the cost-income ratio globally.
If I go now to the following page with the figures for Credit Agricole Group. Again, what you can see is that for the full year, we have a net profit of EUR 8.3 billion on a stated basis plus 3.3% and EUR 7.6 billion, minus 1.5% on an underlying basis. So again, a very high level of profit for the group globally.
Let me now dig a little bit more into the rollout of our strategic plan at the level of CASA. On Page 8, you have some reminders of the global strategies that we are following permanently. And again, this is showing the efficiency of our model which is combining clients capture plus improvement of equipment rate plus permanent enlargement of the scope of products and services that we are proposing to our clients.
On the right-hand side of the page, you see that we've been able to achieve different acquisitions and to conclude different partnerships in the last period of time, thus enhancing further the development of our business lines. And this is leading on the right-hand bottom part of the page, this is leading to a steady increase in our top line, which is up around 1/3 in the last 6 years and again, close to 10% only on 2023.
On Page 9, some additional details on the -- regarding the net profit of Credit Agricole S.A. on 2023. Maybe just 2 indications on this page. The first indication is that the record profit that we are posting with an improvement of EUR 1 billion of net profit on a stated basis and EUR 600 million on an underlying basis is spread across all business lines, asset gathering, large customers, specialized financial services and retail banking activities. And on the right-hand side of the page, some indication and the fact that this improvement of the net profit is mainly and almost exclusively driven by the improvement of the growth operating income. The other elements are either negligible or even negative as the increase in the level of taxes and the other elements.
On Page 10, some elements regarding the profitability, which is -- and continues to be at a very high level, again, 12.6% of return on tangible equity at Credit Agricole S.A. It's the third year in a row that we are above 12%. And if I assess the profitability of Credit Agricole S.A. in average over the last 7 years, we've been around 12% almost permanently. This is leading again to this dividend per share of EUR 1.05 per share. And you can see that it's a multiplication by 3 of the level of the dividend between 2024 and 2023 over the last 9 years.
Page 11, a reminder of the 2025 targets that we had set for the medium-term plan, and you can assess that we are perfectly on line with those targets with a net income group share at EUR 5.9 billion on an underlying basis, so close to the level of EUR 6 billion that we are committed to reach by 2025. I just want to insist on the fact that this level of EUR 6 billion and above for 2025 is going alongside with an hypothesis of cost of risk of 40 bps, which is a little bit higher than the one we had indeed this year.
Return on tangible equity, 12.6%, which is reached in 2023, it's already above the target of 2025 and cost/income ratio, we target to be permanently below 58%. We are at 55.4%, so comfortably below this ceiling that we had set. CET1 stands end of 2023 at 11.8%. So clearly comfortably within the target of 11%. And last point, we're committed to distribute 50% in cash of our net profit. This is more than reached with the level of dividend of EUR 1.05 for this year, so no issue either on this point.
We continue to progress alongside the strategic lines that we had set back in 2022, developing the new business lines we've announced last year. Credit Agricole Transitions & Energies and Credit Agricole Sante & Territoires. We continue to develop the activities and to progressively put in place the different businesses that are going to fuel those 2 new businesses. And we continue also to progress in terms of customer satisfaction in terms of digitization of our services and products, thus leading to a good level of customer capture with close to 600,000 new customers net captured since the beginning of the medium-term plan.
Last page on this -- elements regarding the medium-term plan. We continue to develop our climate strategy. We've committed end of last year for net 0 trajectories for 5 additional sectors so that we now cover 10 sectors. And the global strategy relies first and foremost on the accelerated development of the financing of low-carbon and renewable energy sources with some very ambitious figures that are on this page, amongst which a multiplication by 3 of the financing that are put in place by Crédit Agricole Transitions & Energies and an increase by 80% between 2020 and 2025 of the exposure of Credit Agricole CIB on a low carbon energy financing.
And at the same time, we accelerate our disengagement from fossil fuels with a sharp reduction that we forecast by 75% of the emissions that we finance through the oil and gas financing that we have in place by 2023. The previous target was only a reduction by 30%. This is completely embedded in our offers, in our internal processes, amongst which the budget processing and in our reporting, of course, we are induced to do so by the strengthening of the regulation regarding reporting and disclosure.
Let me now dig a little bit more into the figures. Starting on Page 15 with some elements regarding the activity that we've had in 2023 and especially in the last quarter of 2023. Again, a very good level of customer capture. You see the figures here, close to 2 million new customers and net -- an increase of the customer base by close to 200,000 new customers. We continue to equip -- to improve the equipment of those customers with our different products and services, especially P&C insurance policies. Of course, this year and also in the last quarter of the year, the production of new loans has slowed down as compared to what it was in 2022.
This is, of course, linked to the increase in the level of rates. But nevertheless, loans outstandings continue to grow and the rest of our activities had a very good momentum, both for the full year and especially for the last quarter. And I can give some examples regarding the CIB activities, where we've posted a very high level of activity in the last quarter, very close to the one we had back in 2022, which was a record year.
In Asset Management, we have had strong inflows for the full year and especially for the fourth quarter, bringing assets under management back over EUR 2,000 billion. The level of activity in the insurance business has been very good also for the full year with -- for life insurance activities, a record level of unit-linked products inside the new inflows and a very buoyant activity both in P&C and protection businesses with premium income sharply up. And we also provide some data regarding Credit Agricole Italia, where we have seen a sharp increase in the production of new loans.
Let me now dig a little bit into the evolution of the revenues. Starting with the full year, revenues are up 12% on a stated basis and 9.5% on an underlying basis, which is a sharp increase. And on the quarter, we have, of course, to spread the evolution of the revenues between the insurance activities and the other activities. When it comes to the other activities, revenues are up 9% on the quarter, and it's the case for the Large Customers division, for the Specialized Financial Services division and also for the retail banking activities.
When it comes to asset gathering activities, revenues at Amundi were at a good level and the impact that we have had this quarter is concentrated on the insurance activities. On the insurance activities, we have a significant decrease in the level of revenues compared to a fourth quarter of 2022 that we have restated under IFRS 17. And this decrease in the level of revenues is explained by 3 main elements. The first one and the most important one is the fact that we have had in the fourth quarter of 2023, a very high level of claims regarding weather events that were -- that took place during this fourth quarter, as compared to the fourth quarter of 2022, which was a low level, which had a low level of claims regarding weather events.
And you know that under IFRS 17, there is no longer the possibility of smoothing the impact of those weather events by using or building some specific provisions. So we've said it several times in the past, but this is an illustration of that. We have to take one of the impact of those events. Nevertheless, all in all, for the full year, revenues in the insurance business division are at a very good level. The other 2 elements that explain this decrease in the level of revenues this quarter coming from the insurance business is; first, the restatement of Q4 '22 under IFRS 17, which increased, I would say, the level of revenues as compared to what it was under IFRS 4 by around EUR 100 million. And the second element is the fact that we've taken some specific one-offs this quarter that we presented also around EUR 100 million this quarter, which are not replicable. So all in all, in terms of revenues, a good level of activity and a sharp increase in the level of revenues for the full year and a momentum that continues to grow at the same pace in the fourth quarter.
If I go now to Page 17 regarding the evolution of the cost basis. Again, some specific elements I want to comment on the fourth quarter. In the fourth quarter, there is apparently a significant increase in the cost base by close to EUR 500 million on an underlying basis -- excuse me, on a stated basis and even at EUR 500 million on an underlying basis. But actually, this -- the biggest part of this evolution is explained first by Scope effects.
We have now in our perimeter, Credit Agricole Auto bank, and we have also the European activities of RBCs, which were not in our perimeter back 1 year ago, this represents close to EUR 200 million of cost basis. We have also some nonrecurring items both base effects in 2022, close to EUR 100 million and some specific one-offs in this quarter -- last quarter of 2023 for again, close to EUR 200 million. So net-net, the underlying cost base, recurring cost base is up this quarter only 3.7%.
This is perfectly in line with the level of inflation that we are having now in France and Europe, which were our -- the biggest part of our cost base is taking place. And for the full year, we have a level of cost base evolution, which is in the region of 8%. And again, we have a significant scope effect and some nonrecurring items. And if I restate the evolution of the cost base for the full year from this scope effect and from these nonrecurring items, the evolution is closer to 4%. Nevertheless, even if I take the 8.1% or 8.9% of evolution of the cost base, I compare it to the evolution of the top line, definitely, we have a positive jaws effect.
If I go now to Page 18, regarding the gross operating income, what we can see is that on the fourth quarter, if I leave alone the Asset Gathering business division, because of the specific elements regarding the insurance activities, there is a further improvement of all business divisions in terms of gross operating income. And this is also very much the case for the full year where all business divisions, including the asset gathering business division are significantly improving their levels of gross operating income this quarter. On the right-hand side of the page, we continue to have a decrease in the cost/income ratio at CASA, be it with or without the effect of the Single Resolution Fund, and we continue to be in the best part of the sample of European peers that we follow on this point of view.
If I go now to Page 19, starting with the cost of risk, what you can see is that in the fourth quarter of this year, we have a certain stability of the cost of risk, both vis-a-vis the fourth quarter of 2022 and also vis-a-vis the third quarter of 2023. So all in all, there is a very moderate evolution of the cost of risk for the full year, around 9% for Credit Agricole S.A. and 6% for the group despite the increase in loans outstanding. So no deterioration in the credit quality neither for the full year nor for the fourth quarter.
You can see that this is very much the case on most business divisions on Page 20. I want to stress the fact that on the financing activities of CACIB, we continue to have a very, very low cost of risk. Actually, it's close to 0 this quarter, and it's very moderate for the full year. At the level of the consumer finance entity, we have now a level of cost of risk which is more or less stabilized at a higher level than back in 2022, but no further deterioration and a level that is, in absolute terms, far below the sharp levels that we could have had in the past.
At LCL as well as the regional banks of Credit Agricole, we have a cost of risk which is in the region of 18 bps, and it's concentrated on certain segments of small businesses or self-employed professionals that are weakened either by the increase in the cost of energy or by some specific difficulties in the real estate building business in France due to the -- amongst other elements to the increase in interest rates.
If I go to Page 21, the same figures and the same trends, a high level of loan loss reserves, close to EUR 10 billion for Credit Agricole SA and above EUR 20 billion for the group globally. A level of nonperforming loans overall low, 2.6% for Crédit Agricole SA, 2.1% for the group. And a coverage ratio, which continues to be high, above 70% for Credit Agricole S.A. and far above 80% for the group globally.
This is illustrated on Page 22, where you can see that both the group and Credit Agricole SA are comparing very well vis-a-vis most of their European peers and the diversification of the loan books that we have both for the group and for Crédit Agricole SA explained very well the reasons why this level of cost of risk is low, and this level of asset quality is very good.
Let me go now to the solvency on Page 23. At CASA, the CET1 ratio is stable between end of Q3 and end of Q4, despite the top-up that we've decided to propose on the level of dividend, the normal level of dividend applying strictly our 50% payout policy would have represented an impact of 16 bps on our CET1 ratio and the top-up that we've decided to propose to the General Assembly meeting represents an increase of 6 bps. So all in all, nevertheless, we retained around 10 bps of solvency this quarter, thanks to the high level of profit. The organic growth of our business line represents only 8 bps and as the other elements are quite marginal, actually, this explains the stability of the CET1 ratio at CASA far above this target that we have of 11%.
At group level, we have more or less the same trend with a level of solvency, which continues to be at the forefront of all European G-SIBs far above the second best capitalized G-SIB Europe and with an absolute level, which is stable over the quarter at 17.5%, a distance to SREP at 820 bps.
Regarding liquidity, starting with the customer deposits, it increased close to 3% over the quarter at a very high level, above EUR 1,100 billion, and we continue to have a very good level of diversification of these customer deposits and ensuring the stability and the dynamics of our customer deposit basis. This is generating liquidity indicators, which continue to be very well oriented with liquidity reserves increasing further this quarter, close to EUR 450 billion to LCR ratios above 140%, be it for Credit Agricole S.A. and for the group and be it end of the period or over the whole period.
And last point, we have -- we still have EUR 27 billion of TLTRO to repay. But of course, we have far than enough reserves to face this repayment which are due this year in March and June mainly. I will stop now with this presentation, I simply summarize it stating that we have had a very, very good year. The momentum and a dynamic that is still very active over the last quarter of the year. And thus, we confirm very comfortably our targets for 2025. And as always, we'll try as much as we can to beat those targets. Thanks, and I'm ready now to take your questions.
[Operator Instructions] The first question is from Giulia Aurora Miotto of Morgan Stanley.
We don't hear you. Yes, we are going to take the next question, and we'll go back to you just afterwards because we don't hear you.
I apologize. The next question is from Delphine Lee of JPMorgan.
Good afternoon. I've got 2. My first one is on the cost income and cost in general. I mean, you're already at 55%, which is clearly well below your target, compound target of below 58%. So just wondering, is the intention in the next couple of years to continue to have just a positive jaws of -- is your 0.5 percentage point? Or I mean, just kind of wondering how does that square with your targets in '25?
My second question is on capital and payout. If you could just remind us of the moving parts on capital between the acquisitions and TRIM and just the [ virtuous ] cycle ahead. And also on payout is EUR 1.05 DPS like the new floor. So do you intend to continue to be flexible about the payout ratio and potentially pay out maybe closer to I don't know, 55%, 60% going forward?
Thank you, Delphine. When it comes to the cost income ratio target, I think we are comfortable with this target of being below 58% because we think that considering the business model that we have, considering the type of risks that we take, considering the size of the balance sheet that we mobilize, having a cost income ratio of 58% is prudent enough or below 58% is prudent enough to enable us to cover any level of credit risk that can arise. And so this is a very high level of security for us. We don't think that it's useful to improve permanently the cost-income ratio and to target permanently further improvements of the cost/income ratio. And we think that there is probably a better way to remunerate our shareholders and to boost our development, which is to use the capacity that we've had to generate cost cuttings and improvements in the cost income ratio to continue to invest.
So definitely, there is no intention from our side to modify this level. We target, and we've committed to be below 58%. We are going to do whatever we can in order to remain below 58%. This is clearly a commitment but we are also happy to invest in order to enhance our development capacities going forward. So no modification of the cost of income ratio commitment. No, of course, no decision to increase the cost base without any purpose and the capacity to invest whenever it's needed in order to enhance further the development. And it's going to be more or less the same story regarding the capital trajectory and the way we see the capital situation.
Let me start with the first part of your question regarding the moving pieces that are going to take place vis-a-vis the capital going forward. The elements that are known for the coming 1 or 2 years are TRIM. We still have another EUR 4 billion of RWAs to take, and it's not sure if it's going to be in '24 or '25. We have the closing of Degroof Petercam acquisition that is going to take place this summer. Again, the precise date is not set for the time being. We continue to collect the different authorization that we need to have before closing the deal, but it's going to be either end of Q2 or beginning of Q3. And we know that this operation is going to represent a hit between 25 and 30 bps of CET1 ratio at the level of CASA.
We then have the last layer of the phasing out of IFRS 9. It's a tiny 5 bps this year and a tiny 5 bps next year. And then we have Basel IV starting January '25. And we continue to be of the opinion that seen from now, this is going to be neutral for CASA in terms of capital consumption, in terms of solvency. And again, when it comes to the phasing in of the output flow end of the period. So in 2030 and even 2032, this is going to bite, but bite only at the level of the group, not at the level of CASA. So definitely, these moving pieces are tiny, are well identified and are completely compatible with our level of capital that we have now.
And then going forward, we stick -- and excuse me, there is one last point, which is an element of actuality because it's an operation that was announced only yesterday. There is this acquisition of Alpha Asset Management by Amundi that is going to be closed in the coming, I think, weeks. It's not a very complex operation. And this is going to represent 6 bps of capital consumption for us. So again, perfectly compatible with the level of capital that we have now.
So when it comes to the dividend policy, payout policy, we will continue to stick to the 50-50 policy because we think that it's perfectly normal that we remunerate generously our shareholders. And we've proven in the past that we were very flexible to remunerate our shareholders. But we also want not to jeopardize our growth capacity, and we've proven also that we have the capacity to grow organically and inorganically in a profitable manner. And so we continue to foresee further development of our business lines, mostly organic development, but ready to seize the opportunities if we see some. So the 50% cash payout policy seems to us perfectly in line with this will of being able to continue to grow.
We go back to the previous question, I think we have now Morgan Stanley in line. Is that right?
Yes. The next question is from Giulia Aurora Miotto from Morgan Stanley.
Jerome, can you hear me now?
Yes, we can hear you.
Great. Okay. Perfect. Okay. So 2 questions from me. The first one, as you just pointed out in the previous answer, you're not going to have any impact from Basel IV basically. And 11% I guess, remains your minimum. So with capital generation, that leaves you a bit of excess capital. Do you have any bolt-on opportunity in the horizon? And what are you looking for there? A continuation of what we have already seen or any change. And then secondly, if I look at the revenue trajectory as outlined [ on 8 ] I think. Of course, there has been some very slight growth. Looking forward, where do you see most growth coming in -- from your divisions? And is there any part, which instead is perhaps more challenged?
Well, thank you for your 2 questions, Giulia. In terms of bolt-on opportunities, we are not presently working on any specific opportunities. So there is no file on which we are actively working nowadays that would represent an opportunity in the very near future. But nevertheless, this is a permanent I would say, focus for us and for the different business lines. Of course, maintaining the strict discipline that we have had in the last 2 or 3 years in terms of acquisitions, return on investment, return on normalized equity, capacity to integrate without any difficulty and so on and so forth.
So we are ready to take advantage of opportunities, nothing very concrete still from now. But of course, this is, by definition, what happens with opportunities, they arise at any moment. When it comes to the growth possibilities that we see -- organic growth possibility mainly. Well, it's limitless less for us because again, and the Page 8 perfectly illustrates this strategy. By continuing to attract new customers, by improving the equipment of those customers with the scope of products and services that we are able to propose to them already now and by trying to look at expansion -- further expansion of this scope of products and services, we have very solid growth engines.
And so we continue to think that Credit Agricole S.A. will be a growth story in the coming years.
Next question is from Jacques-Henri Gaulard from Kepler Cheuvreux.
I just had 1 question which was about the one-off that you reported, the one-off item in insurance to start with and also generically throughout your cost base. One is the feeling that this was a choice rather than a necessity probably to think, well, the 9 months are already fantastic. We already had a really, really good year, might as well not make the year that exceptional to leave us a little bit of leeway for '24. Is this the right way to look at it?
Jacques-Henri, of course, we have to strictly apply all accounting rules, so there is not so much flexibility. But of course, when you end up in September with such a high results, there is always the capacity of optimizing a little bit the further evolution of the level of profit.
The next question is from Tarik El Mejjad from Bank of America.
I'm a bit surprised by your last answer, actually, I'm still thinking about it. Look, you want to surprise us every quarter, not to manage expectations. So anyway, no, my question was on the really like strategically on your view of your profitability? I know saying above 12% means can be anything, right? So you can be thinking on your budget 13%, 14%, whatever but for us, we can't give you much more credit than that than the 12%.
And as you pointed out, you've been delivering on average the same for the last 7 years and above 12% for the last few quarters and years. I mean you've been very active on bolt-on M&A and I guess, all very profitable and high-margin business and you're still aiming for the same net profit group share of above 6%. So are you being really conservative when you stick to your very -- I mean, discipline on not moving targets within the plan?
Or there are some elements that you thought could be better and it didn't turn out that way and then you have some positives from growth somewhere else, and you still think that's the right number. And maybe a question, I mean you don't have to answer that, but I will ask it. Do you think consensus is reflecting all the latest M&A or bolt-on M&As you've done?
Tarik, well, I think that actually what we should have done is to put on the same page the series of return on tangible equities that we've posted in the last 7 years. So between 11% and 12% and 13.1% actually because these are the different levels that we've reached. So in average, probably 12%. And on the same page, the evolution of our top line because clearly, what we want to propose to our shareholders is not a return that would target to permanently improve because at a certain point in time, trees do not reach the sky, and there are some levels of profitability that may be a little bit unsustainable or that could lead to too high risks. So our story, our value proposal is a story of growth. And so we are growing the top line. We are growing, of course, the equity basis, the tangible equity basis, and we are proposing a very steady level of return on this growing equity basis.
And this is the value proposal that we are having. So some of our competitors are targeting to improve their level of return. And it's funny to look at the gray bars on the bar chart on Page 10, where you can see that from 2020 to 2023, some competitors have managed to increase significantly their level of profitability, approaching now ours. But is this also going alongside with an increase of the basis on which this profitability is calculated, I don't know. But our value proposal is clearly to continue to post as much as possible, very high level of profitability over time and at the same time to grow.
I mean the drawback of that is that a quarter like today when you have volatility of insurance that's normal under an IFRS 17 world, which is not always very well understood, you get penalized and as your part of your value proposition of tangible book and so on so -- but I hear you. I hear you, and I respect that approach.
Maybe I take the opportunity of your comment, just to comment the level of profitability of the insurance business. On this quarter, despite this very high level of claims on weather events, we've posted the level of profit, which is close to EUR 350 million on the insurance business division. And for the full year, it's EUR 1.650 billion, and it's up 12.5% as compared to last year. So definitely, we are very happy with the insurance that we have, even though this quarter was a little bit more bumpy, it posted a very decent level of profitability. And in both cases, for the quarter and for the full year, it represents around 25% of the net profit of CASA.
The next question is from Chris Hallam of Goldman Sachs.
Two really quick ones, I think. Just on the cost of risk in consumer finance, EUR 170 million in the fourth quarter. I think you said on the call that, that was a normal level. So I just wonder is that the right level of run rate to annualize for 2024. So a clarification on what you said earlier. And then just secondly, maybe a broader question just on the deal with Worldline. Maybe could you just sort of remind us what the strategy is there? And what do you think you can do with the 7% stake in Worldline that you weren't able to do previously?
Two good questions, of course, Chris. The first question regarding the cost of risk CACF in average, the cost of risk on the book of loans that is consolidated within CACF, it's a cost of risk of around 120 bps. So it's more or less stabilized at this level. I think that the assumption that we had in the medium-term plan for this business in terms of cost of risk, I would say, across the cycle, our cost of risk that we deem compatible with the capacity of reaching the EUR 6 billion of net profit with rather 160 bps. So all in all, we are below this peak level of cost of risk.
Nevertheless, what is important from my point of view because it's a business in which we have the capacity to fine-tune the credit granting criteria very rapidly in order to adjust the level of risk that we are taking. I think we are stabilized, and it's okay for us. Of course, we would like and we would hope at a certain point in time to see this decreasing. But nevertheless, 120 bps is perfectly okay.
Second point regarding Worldline. The strategy is very clear. The strategy is to conclude an industrial partnership with Worldline. We are working on it since now many, many months and even more than that. We've signed this agreement with them back last year, middle of last year, I think it was in July. We are still waiting for the approval from the European Commission to establish the joint venture, and I have now the idea that this approval from the European Commission is going to be granted probably in March this year, so next month, which will enable us create the joint venture formally and it's going to go live very rapidly because, of course, we're preparing that since now many, many months.
Then this joint venture is going to start already working in order to improve the scope of products that the group is offering to their merchant clients. And this joint venture is going also to apply for a specific license in order to be able to propose directly payment services to customers. And it's going to develop its own business in partnership with the group and their clients. So this is the strategy, is to conclude and to develop an industrial joint venture and an industrial partnership with Worldline.
When we saw what happened to Worldline last year, end of last year, with the sharp decrease in the share price and some other elements of the kind, we deemed it was relevant to show our confidence regarding Worldline and its capacities by taking this stake at a price that we deem reasonable. And this is, I would say, outside the scope of the industrial partnership that we've concluded. So really, what is important for us, what is key is the creation of this joint venture, the development of its business and progressively the development of our industrial and commercial partnership. The 7% is something different. It comes with it, it was not a necessity. It was more triggered by the circumstances and it's not the basis of our strategy.
The next question is from Geoff Dawes from Societe Generale.
Geoff Dawes here from SocGen. A couple of questions, if I may. First of all, on Amundi and obviously, the Alpha acquisition yesterday. You've said in the past that you will try and limit integration efforts and acquisitions to one per operating division at any one time. Is Alpha big enough to kind of qualify as that? Is that your kind of operational bandwidth for bolt-on deals for asset management for the year? Or can you run things alongside that as well? So that's the first question. On the second question, French retail, could you give us an idea as you're restarting production a little bit in the mortgage book, what kind of margins, pricing, ROE, whatever you look at new mortgages in France are actually generating? Just to give us an idea on a stand-alone basis before any cross-sell and everything else. So those are the questions.
Well, this acquisition that Amundi has signed and concluded, announced yesterday, is very important for Amundi because it's bringing some significant complement to the real asset business of Amundi, but nevertheless, it's a tiny operation. So I think it does not really apply or justify a very longer acquisition than to take your expression, because it's -- this one is, I think, quite easy to plug onto the rest of Amundi. It's not as complicated and as, I would say, large in terms of assets under management and in terms of teams to integrate than, for example, the Lyxor one just 1.5 years ago. So definitely, not the same category for sure.
It's open for deals, if needed.
And I think that Amundi is permanently making -- explaining the strategy regarding the possibility of making acquisition. When it comes to French retail, what we are seeing for the time being, let's talk first with volumes. And then let's talk about volumes and then let's assess a little bit pricing. When it comes to volumes, there were, again, a little subdued in the fourth quarter of last year as was the case for most of the year, and even we've seen a decrease between the third and fourth quarter in the production of new loans. But at the same time, we've seen a continuation of the increase in the level of rate -- customer rates that we've been able to justify vis-a-vis our customers.
And so the loans that were produced in the course of the fourth quarter were, on average, 46 bps above the rate of the loans that were produced in the third quarter. But you know that banks -- French banks have been lagging behind the increase of the usury rate ceiling in the last 1.5 years. So I think we are now -- we've now reached a level where this feeling is no longer that much biting. Nevertheless, the rates that we've signed and not put in place yet in the beginning of 2024, had a rate in average of 4.4%, which is, of course, very significantly above the back book. So of course, this is positive for the future net interest income of LCL and for the -- globally for the market.
The next question is from Sam Moran-Smyth of Barclays.
Yes, two questions, please, both on LCL. So firstly, specifically on the quarter you saw quite a bit of cost inflation. And I think in the slides, you're flagging higher IT and staff costs. So just wondering to what extent we should view those as impacting each quarter from here or some of the kind of higher staff costs Q4 specific? And then secondly, just a bit more strategic. So you announced at your CMD 18 months ago that you would relaunch BforBank. We haven't heard much more on that since then on customer numbers alone, it seems to be somewhat behind the curve. So just wondering if there's a reason that a digital bank brand seems to be of kind of lower importance to CASA than it does appear.
Starting with the cost base at LCL, we've taken some one-offs at LCL as well as in other business divisions. Let me name 2 for LCL. The first one is that we've had in France, a decision from the Supreme Court, Cour de cassation, regarding the way we must calculate some specific provisions on paid leave. So all employers had to recalculate their paid leave provisions, and this triggered an increase, which was quite significant actually for LCL because LCL has a significant number of staff. And so I think for LCL, it was in the region of EUR 10 million of additional cost, which is one-off, absolutely a one-off. It's not going to be repeated quarter-after-quarter.
It is simply a readjustment of the level of the provision. And now starting from now, the provision is going to be calculated according to the new rules set by the Supreme Court. So nothing to expect in the future. The second element is regarding some IT costs. We have decided to write off some IT investments that we had in our balance sheet that we are going to generate over time some amortization and for some reasons, either linked to their obsolescence or some other reasons, we've decided to write off those elements from our balance sheet thus easing the efforts of amortizing over time.
And this is representing, I think, between EUR 10 million and EUR 20 million for this specific element. So all in all, at LCL, the nonrecurring elements of increase in the cost basis represents EUR 32 million on the quarter alone. And going forward, we'll continue to monitor the cost base at LCL, much closer to what you've seen in the last period of time, which is also the case globally for 2023 with an increase for the full year, which was limited to less than 3.5%.
Then when it comes to BforBank, it's not moving the needle at the level of the figures for Credit Agricole S.A. Globally nowadays. But we've relaunched completely BforBank back in September. And so now we have a very, very steady level of customer capture, which is around 2,000 customers a week. And it's been regularly improving in the last 4 months. And so we are on track. The idea is not to pay a lot to attract customers that are going to leave us very rapidly, but to build really a customer base that is going to be loyal to Bforbank in the long run, and that is going to appreciate the specific value of Bforbank for their customers. So we are on track and no worry regarding Bforbank at this point in time.
The next question is from Stefan Stalmann from Autonomous Research.
I wanted to ask 2 things, please. On Slide 19, where you detail your cost of risk, there's about EUR 66 million of other provisions. Could you maybe explain what they relate to? Some of them seem to be in Italy. And the second question also, let's say, risk question. regarding U.S. commercial real estate, which is becoming a bit of a hot topic these days with banks in the U.S. and Japan and Europe being caught out individual banks very importantly. Do you see anything in your particular commercial real estate book where, let's say, fault lines appear or are you totally comfortable with the way the portfolio looks like in other provisions?
The EUR 66 million of provision globally at CASA is spread between CACIB on the one hand and CA Italia on the other hand, it's made of different categories of provision for legal claims for different elements. So not one specific issue, but bits and pieces of provisions regarding different topics, which are not credit risk related, but nothing very specific and nothing that is going to be repeated over time. It's -- I would say, even if it's not under IFRS 9, it's prudent rather than anything else. When it comes to commercial real estate, we -- if we were seeing signs of difficulties in our portfolio, we would certainly have taken some additional provisions, especially considering the level of cost of credit risk at CACIB, which was almost nil on this quarter, but definitely, what we see is that we have no -- we have not identified any weakness in our portfolio, neither globally nor specifically in the U.S., where we have a rather small portfolio as compared to the size that we have globally. And so no, definitely, of course, we are seeing what is taking place in the world, but no specific worry regarding our portfolio, and we provide on Page 65, some additional information regarding our portfolio.
The next question is from Guillaume Tiberghien from BNP Paribas.
I've got 2 questions and one clarification, please. The clarification. Earlier, you said that the new business rates in Q4 for LCL was 4.4%. Did you say mortgages specifically or overall? And is it in January still 4.4%? The 2 questions are number one on the cost. You seem to suggest the underlying cost rate -- cost growth is about 3.7%. Are there any elements in '24 that get you to think that we can ease from that level of 3.7%. And then the second question, a small detail, but on the RWA side, you highlight plus EUR 2.9 billion on corporate center due to some FX impact. So are we going to get back those EUR 2.9 billion in Q1?
Okay. Very precise question, Guillaume, as usual. On the 4.4%, it's the level of the rate of home loans that we've approved in January. And so those loans have not been put in place yet and had not been put in place in the figures of the fourth quarter by definition. They are going to be progressively put in place over the course of the fourth quarter -- of the first quarter of this year. And this level was already around the same level back in October. So I think that what we can acknowledge is that we've reached some kind of a plateau when it comes to the pricing of new home loans in France, at least in our activities.
On the cost base, what do we see going forward in 2024? We are going to continue to have in the first quarter some scope effect because in the first and second quarter because the integration of Crédit Agricole Auto Bank was made only in the beginning of the second quarter of '23. So the first quarter is going to have a scope effect and the integration of RBC's European activities took place only beginning of the third quarter. So again, in the second quarter, we will still have the scope effect regarding RBC. Then we will have, of course, the integration of Degroof Petercam middle of the year and we will have some integration costs, both for RBC and for Degroof Petercam. So these elements are definitely going to play a role in the overall cost base in 2024, but we will, of course, provide all the details regarding those specific elements of cost.
When it comes to the RWAs of the Corporate Center, I can tell you that first operation that represents EUR 1.5 billion of RWAs, has already taken place. So this part is already out and the second part, I don't know exactly when it's going to come, but we'll check the element. But the 1.5% is already gone end of January, it was a specific provision that we needed to take considering the RWA calculation rules because we bought the dollars to repay an AT1 and the repayment of the AT1 is indeed done. So now we don't -- we have no longer the dollars in our books. And so we don't have the impact in terms of RWAs.
My question on the cost maybe was misunderstood. It was more to try and understand whether on an underlying basis, excluding the scope, you can get better than the 3.7% where we finished the year.
We'll see, we'll do as much as we can, of course, to monitor the cost base. We'll certainly have the full year effect of some salary increases that we had granted middle of last year. So for the first part of the year, it's going to have an effect but then otherwise, we have adopted our budget. We don't disclose the budget. But I can tell you that we have had some harsh discussions with the different business lines in order to curb as much as possible their asks regarding their capacity to spend.
The next question is from Anke Reingen from RBC.
I have 2 follow-up questions. Firstly, on the question from Delphine earlier about the EUR 1.05 being a floor. I think you responded with a 50% payout ratio. But I guess that wouldn't exclude you revisiting where you end up at year-end and then potentially top up? And then secondly, on the cost of risk around 40 basis points versus your current run rate, I guess that just assumes like some buffer for the financing area? Or is there a structural shift that we should be expecting with regards to the 40 basis points?
Well, we haven't said that EUR 1.05 was a floor. It happens that for specific reasons, it's been the same level in the last 3 years, but actually the EUR 1.05 of this year is not the same as the EUR 1.05 we had in the last 2 years. So I leave to every one of you the responsibility of assessing if there is a floor or not, but we do not commit to any kind of floor. And the only commitment that we make in terms of dividend policy is the 50% payout policy in cash.
When it comes to the cost of risk, the 40 bps was an assumption, which is a blend actually between the different businesses, retail banking activities, corporate banking, consumer credit. So it's a blend. It's a conservative assumption of what could be the cost of risk, I would say, across the cycle. And it's also an element of the commitment in terms of net profit because what we are targeting is to be able to deliver a net profit above EUR 6 billion, even though we have a 40 bps cost of risk. So it's a calculation element. It's not a forecast. It's not a target. Of course, it's simply is an element of explanation of how you should look at the over EUR 6 billion net profit target for 2025.
The next question is from Pierre Chedeville from CIC.
One question regarding insurance, as we see that people focus on that. Do you think that you would need to change your underwriting policy or your reinsurance policy regarding P&C considering the fact that now, unfortunately, we are probably living in a new world of nat cat more frequent, notably. Do you think there is something like what to do in order to stabilize your technical ratio? And I was also wondering if we have a decrease in the rate notably in the second half of 2024. Do you think that you will have a significant sensitivity regarding the discounting effect on your reserves that may probably disturb the understanding of your results in that part? And do you think that it would be useful to give any sensitivity of your technical ratio regarding evolution of rates in IFRS 17? My second question is about Italy. You mentioned that you have reached a ceiling on interest revenues, which is understandable regarding the high growth last year. But in the meantime, some of your competitors -- Italian competitors said that they see a continuing growth next year less than in '24 -- '23, but still a growth in their interest margin, how do you explain that?
Well, let me start with your last question because it's going to be quite swift actually. I don't want to comment what some of our competitors said. What I'm seeing and actually, we are seeing it already in the course of the fourth quarter is that there is some kind of stabilization at a high level of the net interest income at Credit Agricole Italia. And probably, we are not exactly the same as the other Italian banks because we have probably granted more fixed rate loans in Italy than the average of the market because we think that it's good for the consumers and thus, at the end of the day, good for our cost of risk.
When it comes to P&C insurance activities and underwriting criteria or reinsurance policy. it's clear that every year, when we prepare the next year, we have some elements on which we are going to play. We are, of course, integrating the cost of risk of year x into the pricing of the new policies for year x plus1, and definitely after a year in which the cost of risks -- cost of weather events has increased significantly, there is a translation into the pricing of the policies. So that is going to take place, of course.
And then the second element is that we are discussing with the different reinsurance companies in order to adjust the level of reinsurance that we take, and it's a permanent arbitration between the cost of this reinsurance and the level of protection that is providing to us. In addition to that, you may have seen that last year, Pacifica, which is the P&C insurance company of the group has issued a Cat Bond in order to complement its coverage of national -- natural catastrophes impact going forward.
So it's a permanent adjustment. We have to play on these different elements in order to adjust to what we can foresee in terms of intensity and cost of weather events, but it's pretty sure that the cost of weather events is going to increase going forward and that the only way to cover this increase in the cost is through the level of the premium that we have to apply by definition. There is no possibility for us to take the charge at the place of our consumers. Then when it comes to the impact of rates on the discount dimension of the combined ratio, I don't have in mind any sensitivity on this topic. So I'll check if we have some. And if we have some, I promise that we'll come back to you. But I don't have in mind any sensitivity analysis of this kind. Probably [ seven ] to do so. I think we still have 1 question to go -- 2, 3. So please go ahead.
The next question is from Alberto Artoni from Intesa Sanpaolo.
Just a quick follow-up on the cost. I just wanted to understand, is it fair to say that for you, beating your target of 12% return on tangible equity would be more important than beating your target of the cost income below 58%. And then that would be explained by the type of bolt-on acquisition that you've made, where perhaps you might have higher cost income, but very interesting return on tangible equity.
And my second question very quickly. I understood that you expected some recovery on LCL in the second half of 2024. Is this still the case? Is there something change from that point of view?
Okay. So let me start with your first question, which is a difficult one, and hopefully, we have not been faced up to now with this arbitration to do between cost/income ratio and return on tangible equity because all the bolt-on acquisitions that we've made in average had a cost/income ratio after synergies that was at or below 58%. So nothing dilutive regarding our cost-income ratio in terms of commitment. So no, I would say, jeopardization of our commitment of keeping our cost income ratio below 58%. And at the same time, all these operations were generating a return on tangible equity, a marginal return on tangible equity, normalized equity above 12%. So all these operations were meeting at the same time, those 2 criteria.
I don't have in mind any operation that could lead to -- that could pose the question of making an arbitration between those 2 elements. And it would be, of course, a puzzling situation. But for the time being, I don't have in mind any operation that would oppose your question. When it comes to 2024 and the forecast of LCL, of course, when we say that we say that we expect a pickup in the NII at LCL somewhere in 2024, this is under a certain number of assumptions regarding the evolution of rates, mainly the fact that rates would not start to decrease too rapidly and would not decrease too abruptly. Because, of course, if rates go back down very, very rapidly, and I don't expect that to take place, it would change a little bit the situation. But under the assumptions that we've made and this assumption is mainly the fact that rates are not going to decrease before probably September. This is what we expect.
The next question is from Benoit Valleaux from ODDO BHF.
Two questions on insurance, one in P&C, one in life. Maybe in P&C, just kind of follow-up question regarding profitability outlook. You mentioned price increase post nat cat losses. So how do you see the level of profitability for this year? I mean, is it fair to assume, for example, that your combined ratio could return to more '22 level, I don't know, 95% or below that Under IFRS 17.
And the second question in life. We've seen a decrease in outflows on traditional life insurance products in Q4 versus Q3. Despite this, you have reduced your level of PPE reserve, meaning that you try to boost your level of crediting rate paid to policyholders. So I just wonder if it's a kind of a defensive move in order to preserve your book of business? Or do you see this business as being profitable and therefore, we'd like to push sales on this product going forward?
Well, 2 good questions and difficult to answer very simply. Of course, we've seen an increase in the combined ratio in 2023 as compared to 2022. And I think that all the elements that I was mentioning earlier, underwriting pricing policy, reinsurance policy, Cat Bond issuance, all these elements are here in order to improve further the -- going forward, the combined ratio. We cannot commit to go back in '24 to the level of '22. But certainly, we want to reduce this combined ratio going forward.
When it comes to life insurance activities, we've been using the PPE exactly for the purpose for which it was made. Actually the PPE is here to a company, the increase in rates in order to preserve the portfolio, to develop the business, to remunerate the client, the policyholders. And so we've used a small part of the PPE that we had. We still have a 4.5% or 5% of euro-denominated products outstanding in PPE for the future. But clearly, the idea of the PPE was to be used. And legally, we must use it in the 8 years after the building up of the PPE. So it's here to be used and we've used it for all the purposes you mentioned to preserve the book, to remunerate the customers and to improve their loyalty, to increase their loyalty and also to apply our client policy, which is a policy that needs to be client friendly. And so we did it was reasonable to do so.
The last question is from [indiscernible] Societe Generale.
This is [indiscernible] from SocGen. Can you hear me?
Yes, absolutely.
I have 2 actually please on your Italian retail business. So apologies in advance if I'm missing anything here, but you are describing a quite strong performance in the business this quarter. But on a quarter-on-quarter basis, it actually looks like your revenues are down quite significantly in the division. So can you give us some explanations around that? And whether you expect NII growth to decelerate quite quickly in the coming quarters, even in the context of gradual potential rate cuts as you described this earlier? And then secondly, still on Italy more generally. You've given us a number of customers' acquisition in the business this quarter. Can you remind us your retail market share in the country and whether you've been happy with the way it has evolved over the recent past. Those are my 2 questions.
On your last question, which country are you talking about -- Italy again?
Yes, indeed.
Okay. So in Italy, what we've seen in the last quarter was that, of course, the revenues were up globally for Crédit Agricole Italia. If you can just show the page. Revenues were up 4.4%. And the net interest margin was a little bit down between Q4 -- pre Q3 and Q4. So exactly what we've been saying already between Q2 and Q3, i.e., we have more or less reached some kind of a plateau in terms of NII in Italy because rates have stabilized and even started to decrease a little bit if we talk about long-term rate. So this is perfectly in line with what we had in mind. And I think there's nothing more to say on that. Of course, the same assumption for the future evolution of rates applies as for LCL.
In terms of the development in the country, the last significant operation that we made was the acquisition of CreVal inorganic growth operation. But now we are working on the organic development of Credit Agricole Italia. And in terms of number of new customers that we managed to capture in Italia, we've managed to attract 175,000 new customers in Credit Agricole Italia, which was an acceleration as compared to 2022. So we combine inorganic growth when available and organic growth every time it's feasible. And just to mention that, our market share in Italy is now in -- retail banking in Italy is now at 5%, which is the highest level we reached ever.
Thanks very much. I think it was the last question. So again, thanks for attending this call. And looking forward to seeing you in the coming weeks or months. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference now over. You may disconnect your telephone.