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Crédit Agricole: Citi is not on the market – 11/16/2022 at 09:57

(AOF) – Citi has lowered its buy rating to neutral and has announced a price target of EUR 10.20 for Crédit Agricole. Research bases its decision on its greater exposure to volatile markets, pressure on retail profitability and lower capital levels than its competitors.

AOF – LEARN MORE

Important points

– Listed vehicle of the mutual association of the same name, 1

time

French bank and 8

th

worldwide;

– Net banking revenues of €22.7 billion, composed of 65% from retail banking, 12% from specialized financial services, 14% from wholesale banking and from savings management and insurance;

– Business model in 3 points – Relational excellence by becoming the bank of choice for individuals, entrepreneurs and institutions, local responsibility to support digitization and community engagement by strengthening mutual engagement;

– 55.3% of the capital is held by the regional mutuals, hence the strong presence of their representatives on the Board of Directors (10 out of 21 members) chaired by Dominique Lefebvre, Philippe Brassac as Chief Executive Officer;

– Solid financial position – end of June CET 1 ratio of 11.3% and cash reserves of €468 billion.

challenges

– New “Ambitions 2025” plan: net profit over 6 billion euros and return on tangible equity over 12% / Accelerate technological and digital transformation with a budget of 20 billion euros for IT and digital, of which 1 billion euros for technological transformation / Payout in cash of 50% of the result;

– Innovation strategy, one of the 3 levers of the business model: internal: 90% of the group entities with a “data-centric” architecture in 2022 and 300 million euros in IT efficiency gains, 100% of the IT staff trained in new technologies at the University of Information Systems and 100% of new technologies tested on new business services / towards customers: expanding the range of leading applications (Ma banque Pro, Pro&Entreprises LCL, etc.), offering digital and mobile checkout solutions for small / medium-sized merchants, European e-banking -Offer for large retailers and complete e-commerce offer;

– Environmental strategy targeting carbon neutrality in 2050 for own footprint and investment and financing portfolio; Target for 2025: Reduction of oil exposure to 20% in oil production / for Amundi open-ended funds under active management, an energy rating higher than that of competitors and 20 billion carbon energies and development of hydrogen project platform / 50% increase the financing of renewable energy in France / Target 2030: creation of two new companies, Transitions & Energies for the accessibility of accessible energy transitions and Health & Territories for access to care and “ageing well”;

– Benefits from penetrating Chinese markets (1st

time

foreign wealth management company) and India (cash management offering);

– Reinforcement of mobility funding through the partnership with Stellantis, which will become operational in 2023, and the creation of a specialized internal unit.

challenges

– Integration of Italian CreVal and Lyxor;

– High impact of provisions and increase in risk costs in Ukraine and Russia, resulting in a 16.1% decrease in net income as of 1

ah

semester ;

– Difficult market prospects for the 2nd

n / A

Half-year excluding USA: slump in growth and rise in inflation in Europe, stagflation in emerging markets and interest rate hike.

The negative effects of rising interest rates

The increase in interest rates usually causes an increase in bank income from the loans granted. In Europe, the industry expects its net interest income to increase by an average of 18%, according to a survey of 85 banks conducted by S&P. However, this new inflationary context also has undesirable effects, notably an increase in funding costs. Added to this is the fear of a renewed recession, which would then affect all of the bank’s businesses, from lending to asset management, the earnings of which correlate with market valuations. Reassuring element: Eurozone banks are solid enough to withstand a deterioration in their environment.

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