Commentary
Tomasz Walkowicz
Vice President
Global FIG
+44 (20) 7855 6643
[email protected]
Arnaud Journois
Assistant Vice President
Global FIG
+44 20 7855 6685
[email protected]
Elisabeth Rudman
Managing Director,
Head of EU FIG, Global FIG,
+44 20 7855 6655
[email protected]
DBRS : CA 2016 Net Profit Down but Cost of Risk Declines

Crédit Agricole Group (CA or the Group) reported net income group share of EUR 4,825 million in 2016, a decline of 20% YoY. The aggregate after-tax impact of specific
one-off items was a negative EUR 1,527 million in 2016 (EUR 121 million in 2015). One major factor was a goodwill impairment of LCL (EUR 540 million after-tax
charge) stemming from interest rate pressure and the impact of home loan renegotiations. Other items also included a deferred tax revaluation (EUR 453 million charge) in
4Q16, and liability management transactions (EUR 448 million charge) in 1Q16. Adjusted for one-offs, the underlying net profit group share was EUR 6,353 million, an
improvement of 3.1% YoY. In 2016 CA demonstrated robust volume growth across its key markets and products, continued to derisk its Italian operations, strengthened
balance sheet, simplified the group structure, and unveiled a new medium term strategy, focused on synergies and cost efficiency. The Group remained exposed to interest
margin pressures in its retail businesses in France and Italy, mitigated by growth in volumes.

4Q16 stated net income group share was EUR 671 million, declining by 57% YoY, largely due to the specific items mentioned earlier. On an adjusted basis net profit group
share was EUR 1,648 million, up 9.5% YoY, largely driven by the cost of risk, which declined 34% YoY to EUR 457 million.
Underlying 4Q16 revenues were 7,831 million (+0.7% YoY). Revenue expansion was mainly a result of a good performance in Large Customers and Asset Gathering.
Large customers delivered a consecutive quarter of good performance in FICC and Investment Banking. Asset Gathering was supported by buoyant activity in Insurance
and strong net inflows in Amundi. Revenues in French retail remained resilient as margin pressure was offset by healthy growth in lending and insurance. In LCL underlying
revenues declined by a modest 1.1% YoY. Regional Banks’ revenues on an underlying basis and after adjustment for the effects of unwinding Switch 1 (a mechanism
consisting of a guarantee issued by the Regional Banks and backed by a cash deposit in order to improve Crédit Agricole S.A. (CASA)’s capital adequacy, through the
transfer from CASA to the Regional banks of the capital requirement associated with CASA’s fomer c. 25% equity stake in the Regional Banks) were up 3.1% YoY.




Underlying operating costs for the Group were EUR 5,136 million, up 3.3% YoY. Underlying expenses remained under good control at CASA (+0.8% YoY), but increased
by a significant 6.6% in the Regional Banks, mainly due to IT investments u nder the Medium Term Plan. Underlying cost-to-income ratio was 65.6% in 4Q16 and 64.3%
in 2016 (vs. 63.3% in 2015). Under its Medium Term Plan CA targets a cost-to-income ratio below 60% by 2019.
Cost of risk (rolling four-quarter average) stabilised at a low 28 bps during 4Q16 (vs. 31bps in 3Q16). Loan impairment charges in Cariparma remained on an improving
trend (93 bps vs 101 bps in 3Q16), thanks to a decline in new defaults but picked up in consumer finance (140bps vs 134 bps in 3Q16) as the Group changed its provisioning
assumptions to a more conservative approach. Cost of risk remained low in CIB – Financing activities (27 bps) and in domestic retail (17 bps at LCL). Impaired loans stood
at 3.0%, flat compared to 3Q16.
CA further strengthened its capital in 4Q16. The CRDIV fully loaded Common Equity Tier 1 (CET1) ratio was 14.5% at end-2016, improving by around 10bps QoQ as
internal capital generation (+22bps) was in part offset by a decline in AFS reserves (-11bps). The phased-in leverage ratio stood at 5.7%, up 20bps during the quarter. The
impact of Pioneer Investments’ acquisition by Amundi is expected to reduce the Group’s fully loaded CET1 ratio by 37bps (pro forma based on end-2016 figures).
DBRS: CA 2016 Net Profit Down but Cost of Risk Declines
DBRS.COM
Crédit Agricole Group IBPT/RWAs
NPL Ratio
Cost‐to‐income Ratio
Net Loans‐to‐Deposits Ratio
CET1 Ratio
Table Key (QoQ % Change)
4Q16
3Q16
2Q16
1Q16
4Q15
2.1%
3.0%
65.6%
111.6%
14.5%
1.8%
NA
66.3%
115.3%
14.4%
2.6%
3.0%
60.1%
112.3%
14.2%
1.4%
NA
74.9%
110.0%
13.9%
2.4%
3.0%
61.9%
111.7%
13.7%
More than 40%
21% to 40%
11% to 20%
6% to 10%
0% to 5%
Improvement
Deterioration
Current DBRS Ratings: Crédit Agricole Group Rating
Trend
Issuer Rating
A (high)
Positive
Short‐Term Obligation R‐1 (middle)
Stable
Footnotes:
IBPT/RWAs:
NPL Ratio:
Cost-to-income ratio:
Net Loans-to-Deposits Ratio:
CET1 Ratio:
Income before provisions and taxes / avg. risk-weighted-assets under Basel III
Non-performing loans / Total gross loans
Total operating expenses / total gross operating income
Net loans excluding repos / deposits excluding repos (when available)
Fully loaded Basel III Common Equity Tier 1 (or transitional if not available)
Notes:
All figures are in Euro unless otherwise noted.
Sources: Company Documents and SNL FinancialFor more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].
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February 17, 2017